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Providing coverage of Alaska and northern Canada's oil and gas industry
August 2008

Vol. 13, No. 35 Week of August 31, 2008

Vote approves area power partnership

Anchorage Assembly vote opens door to new $370M natural gas fired power plant; concerns remain, financing not secured

Eric Lidji

Petroleum News

The Anchorage Assembly recently voted seven to three to move forward on building new natural gas fired power plant with the help of a local electric cooperative.

The vote approves an agreement between Municipal Light & Power, the city-owned electricity company, and Chugach Electric Association, a local electric cooperative, to build a 180-megawatt to 270-megawatt power plant next to Chugach headquarters.

The Chugach board of directors approved the agreement in late July.

While the new power plant would add generation to the local electricity grid, its main purpose is to replace aging facilities and improve efficiency, two problems facing electric utilities up and down the road system.

Although the new plant is expected to cost around $370 million plus interest, advocates including Anchorage Mayor Mark Begich believe the new gas turbines would ultimately save local ratepayers around $67 million over 20 years through reduced fuel costs.

By using less gas to make electricity, the new plant could also extend the life of Beluga River, the Cook Inlet basin gas field partially owned by the Municipality of Anchorage and responsible for the low rates ML&P customers have enjoyed for more than a decade.

Under the 30-year agreement, Chugach would pay 70 percent of the construction costs and receive an equivalent amount of electricity, while ML&P would cover the remaining 30 percent of the cost and use the remaining electricity.

According to a timeline provided by the city, the utilities would contract out the gas turbine this fall, begin preliminary permitting and engineering next spring, and start building in early 2010 with the goal of bringing the plant into operation by late 2012.

The Chugach and Anchorage Assembly votes don’t guarantee construction, though.

The size and configuration of the plant still hasn’t been finalized, and financing for the expensive effort has yet to be secured. The Municipality of Anchorage, however, has already allocated $3 million toward the initial construction costs expected this year.

Doubts remain on Assembly

Although power consolidation has long been a goal in Southcentral Alaska, recent efforts to combine Chugach and ML&P operations only began early last year, and are part of a larger effort to redefine how electricity is made and delivered to customers in Anchorage.

Rather than pursue a traditional merger, Begich and leaders of the two utilities unveiled a plan in July to rearrange the responsibilities of Chugach and ML&P, taking advantage of tax-exempt financing available to the city and economies of scale between two utilities that currently provide identical services to different parts of the city.

Under the proposed plan, ML&P would assume ownership and operations of all generation and transmission for the area, including the new plant, while Chugach would become solely a distribution cooperative. The plan would also create an Anchorage Power Authority to manage ML&P, with the goal of giving it more independence.

Although that plan, including the proposed power plant, grew out of meetings held by a special committee over the past year, some assembly members have since become frustrated with not seeing the entire deliberative process leading up to the agreement.

In the days before the vote, several assembly members received documents outlining concerns ML&P staff members expressed during those deliberations, as well as the responses of the contractor hired to select the site of the proposed power plant.

Responding to those concerns, the Anchorage Assembly approved three amendments requiring the utilities to share the cost of a transmission line from the new power plant to the existing ML&P system, to make use of the waste heat from the plant, and to work to bring the Matanuska Electric Association, or MEA, on board.

MEA, an electric cooperative serving communities north of Anchorage, currently buys its power from Chugach and has been working toward building its own generation facilities.






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