Clock’s ticking on new fuel infrastructure

Editor’s Note: This is the second two coumns by MEA General Manager Joe Griffith on the challenges facing Railbelt utilities.

In Part I, the predicament that the electrical Railbelt finds itself in today calls for immediate solutions. Hope is no longer a strategy.

Railbelt generation is 90 percent fueled by gas and the two-year gas supply forecast is alarming. There is simply not enough gas for Enstar and the Railbelt electrical utility together (95 billion cubic feet). Railbelt electrical utilities gas needs alone are over 40 bcf. Known gas reserves are projected to meet half of the demand by 2017.

Options and alternatives

Railbelt utilities must find and implement solutions. Proactively, Chugach and MEA inked an agreement to create a generation and transmission (G &T) co-op. Joining forces facilitates obtaining future power supplies for 130,000 consumers in Anchorage, Whittier, Kenai Peninsula and the Mat-Su Valley.

This innovative forward step involves securing our energy future. This co-op would generate and transmit wholesale power to Chugach and Matanuska distribution utilities. Other utilities may be interested in buying some of the power produced. Chugach and MEA would share economies of scale, economic power dispatch and financial strength and commonality of purpose. Aggregating gas would take pressure off the immediate fuel problem through more borrowing power, providing a conduit for state grants and allow us to tackle big hydro projects.

Royalty

Alongside a G&T co-op, other available options come with tall price tags. As a royalty state, the people own 12.5 percent of our resources. The state has contracts with various producers, called a lease, whereby they contract to produce our gas. Alaska can take its royalty share in two different ways: one is royalty in kind where we take 1/8 of the gas or royalty in value where the producers have to sell the gas and give us our percentage in cash. The state traditionally takes its share in royalty in value, more than $50 million a year.

Annually, that royalty in value goes into the state coffers. The Railbelt electrical utilities hope for some portion back to help defray the $14 billion price tag of fixing our aging system. After all, it was our members who paid a portion of that royalty. Today we find ourselves left with no state contribution to help defray the costs of upgrade, new equipment or fuel supplies.

The Nikiski plant

Utility reps, in pursuit of future gas supply, met with Conoco Phillips’ late boss Jim Bowles to look at different scenarios linked to the Conoco/Marathon Nikiski LNG plant. Sadly, we believe the importation of LNG is inevitable and the Nikiski plant is outfitted with a dock, plumbing and some gas storage capability. They could also allow the utilities to build a re-gasification facility that would tie into the Conoco plant, buy LNG and re-gasify it. They were to provide us with an estimate on location, space and cost. We also asked for right of first refusal to buy the plant outright should they decide to sell it.

Hydro, wind and Eklutna generation

Susitna drainage hydro projects, Chakachamna, Glacier Fork and South Fork may provide added wattage to the Railbelt, but certainly not immediately. Larger plants are more than 15 years downstream.

Wind projects on the table are Fire Island, Nikiski, Eva Creek north of Healy, and Coal Mine Road near Delta Junction.

The all-needs contract that MEA has with Chugach expires in 2014. A gas-fired 180 megawatt plant is under consideration and requests for proposals have been released. MEA will be carefully reviewing each proposal.

Out of gas, out of time and with a well run dry on patience, the state must step up to the table to ensure the infrastructure for power delivery. Much of the Alaska economy was built on cheap electrical power. Cook Inlet gas in the 1970s was 25 cents a mcf; today that number is $5.98 to $8.90. We built the Beluga Plant and began gas contracts with Arco on that 25-cent gas, but the days of inexpensive, plentiful gas are over. Now it is time to get serious about future gas supply and costs to our members and customers.

Joe Grifffith is general manager of MEA.