MEA inks natural gas contract through 2023

WASILLA — Matanuska Electric Association announced Tuesday it has signed a deal with Texas-based, Cook Inlet producer Hilcorp to provide natural gas for the co-op through 2023.

The gas would fuel MEA’s 171-megawatt Eklutna Generation Station, and according to MEA, ratepayers will see a savings in the first year of the contract, which is slated to begin in April 2018.

The new contract is pending Regulatory Commission of Alaska approval, MEA spokeswoman Julie Estey said Wednesday. The agreement is a “full requirements” contract, which covers swings in gas demand levels between summer and winter.

“We appreciate Hilcorp negotiating an agreement that provides our members with energy stability and certainty while allowing for the flexibility required during these uncertain economic times,” MEA General Manager Tony Izzo said in a press release. “As someone who has scrutinized gas contracts for many of my 35 years in the utility industry, this agreement represents a very positive step forward for our members.”

Izzo previously served as the fuel supply manager for MEA and was a former chief executive officer for Enstar Natural Gas.

With 50,000 members, MEA is Alaska’s oldest and second-largest electric cooperative.

MEA is the latest utility to agree to contracts beyond 2018. Homer Electric Association signed an agreement with Inlet operator Furie Operating Alaska last fall to purchase gas through 2020, while Anchorage-based Chugach Electric extended its Hilcorp contract to 2023 in an August 2015 deal.

According to MEA, the first year of the contract will see a price of $7.55 per thousand cubic feet, an approximate 6 percent reduction of the cooperative’s expected 2017 price of $8.03 per thousand cubic feet. The phase-out of the higher rate marks the end of a consent decree Hilcorp signed with the state of Alaska after purchasing Cook Inlet assets from Chevron Corp. and Marathon Oil Co. in 2012 and 2013. Last summer, Hilcorp bought the Cook Inlet assets of Exxon Mobil subsidiary XTO Energy.

Based on anticipated consumption, the new contract price will save co-op members an estimated $3 million in the first year of the contract, according to MEA.

Along with fulfilling the gas supply needs for local power generation, the contract also provides gas for power sales to other utilities through the voluntary loose power pool market, an arrangement that accounted for 10 percent of MEA’s total plant output in 2015, according to the co-op.

The agreement sets minimum and maximum annual volumes. Another provision of the contract allows for gas not taken in one year to be shifted into the next. MEA also agreed to a unique “turndown option,” which gives the co-op a one-time option to reduce its required volume and purchase less expensive gas from another supplier if it becomes available.

“MEA can exercise the turndown option at any during the new contract term,” Izzo said in an email Thursday. “This a one-time option that MEA can exercise to purchase up to 20 percent of our required gas volumes from another producer. The RCA would have to approve any contract for this replacement gas.”

Another provision in the contract provides MEA priority for delivery to facilities on the west side of Cook Inlet.

“If gas volume delivery had to be curtailed for some reason on the west side, MEA would be first in line for our needed gas from Hilcorp,” Izzo wrote.

Looking ahead, Izzo wrote that while the lower Hilcorp price was a positive adjustment in the Cook Inlet market, current low oil prices have created uncertainty regarding tax credits for oil and gas producers.

“We have seen Apache leave Cook Inlet, BP is reducing its workforce, Cook Inlet Energy and Buccaneer both declared bankruptcy,” he wrote. “A reduced level of investment in Cook Inlet is not good for the security of the gas supply and prices.”

Contact reporter Steven Merritt at 352-2269 or steven.merritt@frontiersman.com