Contracts and power pooling issues in HEA’s future

The three people elected this year to the Homer Electric Association Board of Directors will be part of decisions about the utility’s natural gas supply contract, its continued management of the Bradley Lake hydroelectric plant, and whether or not to join a group of power producers attempting to save costs by prioritizing their buying and selling of power according to cost of generation.

Bradley Lake and gas supply contract

In 2018 the HEA board will decide whether to continue with two important contracts — one for the supply of natural gas fuel that powers roughly 90 percent of HEA’s power generation, and the other for management of a state-owned hydroelectric plant that supplies the other 10 percent.

The state-owned Bradley Lake Hydroelectric power plant was built in 1986 on the south side of Kachemak Bay, and has been generating about 90 megawatts of renewable electricity since then. This power is split between six utility companies invested in Bradley Lake, with HEA receiving a 12 percent share that represents the only renewable energy presently in its portfolio, and also the cheapest — Bradley Lake power costs about four cents per kilowatt, while gas-fired electricity is about eight cents per kilowatt.

HEA staff operate the Bradley Lake plant under a contract with the state that is set to expire in June 2018.

Current HEA Board President and District 3 incumbent candidate Dick Waisanen said HEA holding the Bradley Lake contract is a win-win situation for both the cooperative and the other utilities involved. Because HEA is physically closest to the plant it can manage it for the least expense, while receiving the advantage of using the plant to train its employees.

District 1 incumbent Kelley Bookey, District 3 candidate Doug Stark, and District 2 candidate Daniel Furlong also said they’d like to continue the Bradley management agreement. Stark added that he’d been an advocate of building the Bradley Lake plant in the 1980’s, and Furlong that he’d done contract work on installing the heavy steel safety gates in the plant’s water tunnel.

HEA also owns the transmission lines that carry power north from the Bradley Lake plant to the other utilities, and has argued that it is unfairly paying the cost of that transmission. In January 2016, HEA temporarily raised its rates by 3.25 percent to cover that added transmission cost.

When the Regulatory Commission of Alaska decided against HEA’s claim that other utilities ought to be charged for the cost of the transmission, HEA brought the matter to the Alaska Superior Court. After an unfavorable ruling there, HEA appealed again to the Alaska Supreme Court in June 2015.

Since February 2016, the Bradley Lake utilities have been holding an out-of-court mediation on the transmission issue. HEA General Manager Brad Janorschke reported to the Board of Directors on Tuesday that the utilities are now working to finalize the language of an agreement. Part of finishing the settlement is calculating a precise cost to transmit power from Bradley Lake, results that Janorschke wrote would be due by the end of 2017.

Apart from the Bradley Lake power, all HEA’s electricity is generated by natural gas that the utility buys from Cook Inlet suppliers through long-term contracts. The cost of this fuel makes up 25-30 percent of a member’s electric bill, according to previous statements by Janorschke.

Hilcorp supplied HEA’s gas from 2012 to April 2016, when HEA signed a contract with Furie Operating Alaska for gas at an initial price roughly 12 percent cheaper than Hilcorp’s. The contract price — presently $6.50 per thousand cubic feet of natural gas — rises by 25 cents per year. Next year HEA will decide whether or not to continue its contract with Furie, which can be optionally renewed until 2020.

Furlong said HEA “should definitely look for other sources of fuel at all times, but review and renewal of that contract is definitely something that needs to be on the table.”

Bookey said he’d support the contract as long as it remains favorable.

“It’s been a good deal,” Bookey said. “It’s brought our cost of power down. And as long we can keep negotiating good contracts with these guys I’m all for it.”

Power pooling

In January, three other utilities that work in the Railbelt — an interconnected system that delivers electricity between Homer and Fairbanks, serving about 70 percent of Alaska’s population — signed an agreement “allowing the utilities to buy and sell power when it is more economic than generating their own,” according to a Jan. 30 press release from Chugach Electric announcing the creation of their power-sharing pool. By prioritizing power from the most efficient sources, the release states, the utilities estimated they’d save between $12 million and $16 million per year.

In his Feb. 2017 manager’s report, Janorschke mentioned the possibility of HEA joining the agreement, writing that “HEA staff will continue to monitor and evaluate the potential benefits and risks of joining the pool before making a recommendation to the Board.”

Waisanen wrote in his candidate information sheet that one of his goals as a director would be “to diligently maintain HEA’s independence from other Railbelt utilities” — a reference, he said, to the power-pooling arrangement.

“The advantage of a power pool is to buy and sell electricity, and we’re already doing that independently,” Waisanen said. “We’ve been doing pretty much everything a power pool can do. Unless they come up with something new we can’t do on our own, I don’t see an advantage for HEA. Every time they form up a pool, you’ve got a new administration you have to pay for. If you can do it without starting another bureaucracy, that’s what you should do.”

Bookey likewise saw little incentive for HEA to join the power pool, since HEA has its own generators on the peninsula. Bookey’s first term as a director came in 2011, when HEA was beginning Independent Light, an approximately $180 million project to buy or build its own generating plants. Previously, HEA had been only a distribution cooperative that bought and transmitted power for its users from Chugach Electric Association.

“They don’t want to play with us, why should we play with them?” Bookey said. “Where we were with Chugach for all those years, we didn’t have a choice — they dictated to us. Now they can’t. Nobody can dictate to us because we make our own.”

Stark said joining the pool could save rates and that it would be “one of the first things I sink my teeth into when I’m on the board.”

“Everybody in this area except Homer Electric signed on to that, and I’d like find out why, because I think the whole concept of what that project is doing — sharing the power, so to speak — is a way to save money for the users,” Stark said.

District 1 candidate Kate Veh said she would seek more information about the power pool, Bradley Lake management agreement, and gas-buying contract before reaching a position on those issues. District 3 candidate Jim Levine hadn’t been reached for an interview by press time.

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