Explaining recent MEA rate changes

A caller to the Frontiersman recently urged us to do an investigative piece on electricity rates in the Valley and why they are going up.

We have no intention of doing that.

Not because the story isn’t important but because the story of why electricity rates are going up has been written already, numerous times over the course of the past decade, or more.

Instead, as a public service we will recount the highlights of that long story here.

In a nut shell, natural gas prices have gone up and aging infrastructure required replacement, which combined to drive up the per kilowatt hour cost of electricity for residential and business customers across Southcentral Alaska.

But this story starts decades earlier with the discovery of natural gas in Cook Inlet.

Producers had a lot of gas and the only place to sell it was to Southcentral utilities. That led companies to enter into long-term “legacy” — as much as 30-years in some cases — contracts for natural gas that expired just a few years ago.

Those kinds of contracts and the low rates they offered are no longer available, meaning that utilities that burn gas to provide electricity have been forced into short-term contracts.

Those contracts now move up and down as utilities negotiate new gas contracts, which must then be approved by the Regulatory Commission of Alaska. The trend in these contracts has been steady gas cost increases from contract to contract.

So energy costs are going up. But so are infrastructure costs.

Out at Eklutna, the Matanuska Electric Association is building a power plant to serve its customers in Eagle River and the Mat-Su Valley.

Once fired up, the so-called Eklutna Generation Station will provide most of the power the utility needs. It’s also a massive project for which the company had to take on added expenses.

Power generation infrastructure across Alaska is old and Chugach Electric Association and Municipal Light and Power finished up a plant in 2013. Chugach Electric will continue to sell MEA electricity until the switch is flipped in Eklutna in the next couple of months.

That date had been set for Jan. 1 of this year but MEA had to push it back. One of the line-items on electric bills reflects the cost of a temporary renewal in the Chugach contract.

Rates for electricity in Southcentral Alaska are expected to continue to increase. In August 2014, MEA announced that its board of directors had approved a 2.19 percent increase for the fourth quarter of that year.

At the same time, MEA cautioned members to expect an additional rate increase of approximately 15 percent to 20 percent during the next 18 months.

At that time, MEA spokesperson Julie Estey said gas and other fuel costs are about 60 percent of the increase, construction costs make up the other 40 percent.

However, rates also would have increased if MEA had continued buying power from Chugach Electric, Estey said.

She said MEA evaluated options when it came time to renew its power contract with Chugach several years ago.

“When we received the numbers, this was the most economic option,” she said.

In short, the trend in the cost of electricity locally is increasing, not decreasing.

Customers worried about increased costs would be well advised to consider weatherization programs or alternative energy sources as tools. When the thing driving up your power bill is the price of energy, there’s really not much else you can do.