Report critical of MEA plan

May 27, 2007

By Russell Stigall

Frontiersman

MAT-SU - Possible miscalculations in Matanuska Electric Association's proposed new power plants may end up costing ratepayers hundreds of millions of dollars.

MEA could incur the millions of dollars of unexpected costs if it sticks by its current plan to build and operate 200 megawatts of new electrical generation in the Valley, said utility consultant Mark Foster, of Mark A. Foster and Associates.

MEA commissioned a 70-page Integrated Resource Plan from the Anchorage branch of the international engineering and construction firm CH2M Hill. The plan spelled out MEA's generation needs and options in the years leading up to and possibly beyond 2043. CH2M Hill estimated that MEA would be best served by a 100 megawatt coal-fired generator and a 100 megawatt natural gas turbine generator built by 2015.

MEA has not released the full report. But a 10-page &#8220executive summary” of the plan has been made public.

Currently, MEA purchases wholesale power from Chugach Electric Association. Other than Anchorage's Municipal Light and Power, MEA's member-owners pay the lowest rates in Southcentral Alaska. MEA's contract with Chugach ends on Dec. 31, 2014. MEA has given Chugach notice that it will not renew the current contract.

Mark A. Foster and Associates found CH2M Hill's numbers to be suspect when Foster and his firm conducted an independent review of MEA's summarized Integrated Resource Plan.

&#8220There is a significant chance MEA has underestimated the cost of coal-fired power in its area,” Foster said.

Foster's group was working on a study of Alaska's five big Railbelt utilities for the National Wildlife Federation and came across some inconsistencies in CH2M Hill's report.

Foster was then approached by Pete Houston of the MEA Ratepayers Alliance, a watchdog group fighting MEA's planned coal plant. Foster presented the Alliance with an advanced draft of his MEA IRP analysis. It can be found by clicking the &#8220Documents” link at the group's Web site, www.mearatepayers.com.

Foster came up with four main areas where the group found what they believed to be errors in MEA's IRP.

While MEA estimates its coal plant can run for about $60 per megawatt hour, Foster estimates the long-range levelized cost to be twice to three times that amount.

The discrepancy comes from what Foster considers a too-low cost estimate for building and operating a coal-fired power plant in Alaska and MEA's underestimated offset costs for the plant's carbon dioxide emissions. MEA's IRP estimates the cost to build and operate the plant to be about 25 percent more than a similar plant in the Lower 48.

Foster estimates the inflated cost to be more in the range of 75 percent greater, based on past projects like the Healy Clean Coal plant and on estimates done for Chugach Electric Association by energy consultant Black and Veatch.

MEA's underestimation of the cost of carbon dioxide offsets alone could result in MEA member-owners paying close to $1 billion more than MEA's estimates over the project's lifetime, according to Foster.

MEA based its operating costs on a tax of $9.54 per ton of carbon dioxide emitted. Based on recent awareness of climate change and current legislation calling for a tax on carbon emission, Foster believes MEA will face costs closer to $10 to $85 per ton of carbon dioxide released.

At full capacity, a 100 megawatt generator like the one proposed by MEA would produce about 1.12 million tons of carbon dioxide per year.

Two other Railbelt utilities looked into coal power options. Though Golden Valley Electric Association is in contract with Usibelli Coal to supply coal to the utility's plant in Healy, GVEA chose naphtha - a liquid hydrocarbon - as the fuel for its new generator. Chugach Electric looked at a coal plant near the proposed Chuitna coal mine and decided on natural gas as fuel instead.

&#8220We looked at coal and we thought that it was pretty expensive,” said Phil Steyer, spokesperson for Chugach Electric Association.

Foster also found that MEA's IRP dismisses strategic and cost-saving power options.

MEA's requirement that its power come only from the heart of the Mat-Su Valley leaves out options like base-load hydroelectric power from Lake Chakachamna or a scaled-down Susitna River dam project, geothermal power from Mount Spurr or Cook Inlet wind power. Foster said that current fossil fuel costs make now a good time to shift to renewable energy, &#8220reducing exposure to volatile and escalating fuel costs and carbon tax risks.”

MEA spokesperson Tuckerman Babcock would not dispute Foster's findings or comment in any way about the report. However, in the past MEA officials have stated that the only option for reliable base-load power is through coal and natural gas generators.

Houston, of the MEA Ratepayers Alliance, said Foster's report should be taken seriously.

&#8220I think it presents a very rounded second opinion,” he said.

He was critical of the MEA board of directors and administration for their unwillingness to consider contrary opinions. Other utilities, he said, are open to suggestions and are willing to have plans for huge projects peer-reviewed.

&#8220But they don't seem to be open to it. I don't see why they're not interested in looking at (the report),” Houston said. &#8220There are huge discrepancies. They should at least go back to CH2M Hill and have them look at the report and explain the discrepancies.”

Foster also questioned the MEA assumption that the best way to improve reliability for its member-owners is to locate its generators in the Valley.

Failures in power lines caused by high winds, ice, nearby trees and small animals make up two-thirds of all electric outages in Alaska, Foster's report says. Generation failure makes up only a third. Foster said MEA could improve reliability with aggressive tree trimming, distribution relay enhancements and monitoring programs.

Foster was also critical of MEA's unwillingness to work cooperatively with other Railbelt utilities.

MEA's proposal would end decades of negotiating with Chugach Electric, an economically regulated utility, and open up new contracts with unregulated coal and gas suppliers, Foster said.

&#8220If you were a fuel supplier, what would you rather have, one big guy negotiating or four or five small guys?” Foster asked. &#8220MEA underestimated the value of working together.”

Contact Russell Stigall at

352-2267 or russell.stigall@ frontiersman.com.