MEA wants to fast-track power plant

PALMER — What happens if the calendar rolls over to Jan. 1, 2015, and the Mat-Su Valley goes dark?

“That’s one of the things that makes me not sleep at night,” said Matanuska Electric Association General Manager Joe Griffith.

Griffith and the MEA board met with contract engineers and staff Thursday morning to move the cooperative’s proposed Eklutna Generation Station out of the preliminary planning phase.

“We will build it,” Griffith said. “It’s the unforeseen things that frighten me. What if the economy goes south? What if we don’t get something (fuel) to put in the pipeline? Boy, I’ll tell you, if Alaska’s economy isn’t there, it’s a whole other world for us.”

Facing a hard deadline, MEA is obligated to move forward with building a plant near Eklutna that would generate anywhere from 100 to 170 megawatts of electricity. MEA’s contract with Chugach Electric Association to provide all its power needs expires at the end of 2014. That’s why MEA needs to act now to make sure its new plant is ready to go by then — despite some major questions that are still unanswered.

On Monday, the MEA board of directors will be asked to approve a limited notice to proceed agreement with CH2M HILL, the contractor that will build the plant. Facing a fast-approaching deadline for an air quality permit, the board is expected to vote on whether to approve up to $565,000 for CH2M HILL to begin and $250,000 for R.W. Beck, a consulting firm helping MEA manage the project, which could cost between an estimated $162 million and $228 million, depending on how much power the facility would be expected to produce.

If the board approves the funds, CH2M HILL and R.W. Beck will kick into high gear while the overall project still hasn’t identified a firm source of natural gas to fuel the plant or financing to pay for its construction.

“If you don’t move forward, the lights are going out, and the law says I have to keep the lights on,” Griffith said. “I don’t have an option.”

The board seemed to agree Thursday, and questioned MEA staff and Bob Battenhouse, senior project manager for R.W. Beck. No matter how MEA keeps those lights on, the cost of electricity in the Valley is going to go up, said board member Bob Doyle.

“People need to realize there is a cost to this, and it’s not going down,” he said. “I don’t see that. We can try to hold costs down that are not directly tied to generation and transmission.”

Breaking new ground

When the Eklutna Generation Station comes online, it will mark the first time MEA has generated any of its own power. Outlining rough estimates of how much it could cost the cooperative to make that electricity, assistant general manager Don Zoerb gave a range.

On the low end, it could cost 11.3 cents per kilowatt-hour (kWh), which includes a fuel cost of $7.75 a foot (in 2014 dollars) and an interest rate of 5 percent, Zoerb said. On the high end, it jumps to 12.9 cents/kWh, including an interest rate of 6 percent and a $9 a foot fuel cost. That compares to a low of 7.1 cents and high of 11.8 cents paid wholesale to Chugach over the past three years.

“There are still some major unanswered questions,” Zoerb said. “We’re still not sure what the financing cost is going to be or what the fuel cost is going to be.”

What he does know is that Chugach is projecting its fuel costs to increase 10 percent in 2013, 3 percent in 2014, and 7.2 percent in 2015.

The immediate financial concern for MEA now, he said, is to approve the limited contract with CH2M HILL so it can attempt to obtain an air quality permit before July 1.

After that date, the rules change and the Eklutna plant would most likely have to get a more expensive permit and include provisions for reducing CO2 emissions.

“We have a situation where we have a parallel path,” Battenhouse said. “If we can get a permit issued by July 1, we can get what’s called a ‘minor source permit.’”

Essentially, the plant would be a minor source polluter under that permit, he said.

“What happens after July 1 is regulations change and the EPA and the state now considers carbon dioxide as a priority pollutant. If those are considered … you have to prove you’re not going to deteriorate the environment and the ambient air quality standards.”

Either way, the equipment and design of the plant would comply with either permit, Battenhouse said.

Heart of the

power plant

MEA board members also got a first look at the powerhouse engines planners want to use in the Eklutna plant, a Wartsila 18V50DF engine that’s capable of running on natural gas and diesel fuel, said Gary Kuhn, the co-op’s director of engineering.

A top-of-the-line technology, the engine can start from cold to producing a full load of power in 10 minutes or less and can generate 17 megawatts of electricity. The initial proposal to install six of the engines — which is what Griffith said he prefers — would produce just over 100 megawatts.

The plant would be built to easily expand and add four more engines, if it’s needed anytime in the near or far future, Kuhn said, putting the output up to 170 megawatts.

“I’m going to build the smallest plant I can get away with, because that has the least cost to it,” Griffith said. “We may get to 200 megawatts at some point, but that may be well downstream.”

Along with MEA’s new plant in Eklutna, other major developments in Southcentral power generation promise to remake the power landscape, Griffith said.

“As soon as this plant comes online, it’s a whole new scenario for the Railbelt than we’ve seen in the last 40 years,” he said. “Very clearly, the price is going up.”

Where’s the fuel?

While MEA hasn’t officially secured a source of natural gas to fuel the Eklutna plant, the co-op has several options to consider between now and the beginning of 2015, Griffith said. There are three new gas wells beginning operation within the region and two that excite MEA.

“Those have recently been drilled and have shown great promise,” he said. “With two of those, we have an arrangement to give us first bite of the apple, and I think that’s very important, because that means if there’s sufficient show in the wells we might get our fuel needs met early on.”

One of those wells is in the Goose Creek area near Knik and only about two miles from an existing gas line. Another is west of Swanson River in the Kenai area.

“There are a couple of bright spots, and with some luck we might have a gas supply,” Griffith said. “If we don’t, there are two alternatives being investigated. The first is natural gas importation and liquefied natural gas importation. Both of these are high-ticket items and will cost us a lot of money, upwards of $300 million, so all the (Railbelt) utilities would have to go in to make that work.”

The worst-case scenario would be to burn low-sulfur diesel, which could cost three times — or more — what natural gas would. The bottom line, Griffith said, is MEA must generate power, and must do so by the end of 2014.

“We’ll probably have answers to all these questions by 2013,” he said. “So, in effect, we’re starting to build a plant really without a firm gas supply. You might say, ‘well, that’s stupid.’ And one might conclude that. But there’s always the alternative to keep the lights on … (with) diesel fuel, and these engines will burn diesel fuel. We believe at every point there is an alternative we can get to continue to keep the lights on.”

Contact Greg Johnson at greg.johnson@frontiersman.com or 352-2269.