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New gas supply agreement filed

Chugach and Hilcorp have come to terms on a new agreement that will provide natural gas for Chugach into 2023. The new agreement – technically the Third Amendment to an existing contract – was filed for approval with the Regulatory Commission of Alaska on July 23.

The new agreement will lower the unit price for gas paid by Chugach while providing greater operational flexibility to the utility in managing gas supply.

Hilcorp is one of Chugach’s existing gas providers. Hilcorp entered the Cook Inlet market with the acquisition of the assets of Marathon Alaska Production in 2012. Chugach also purchases significant amounts of natural gas from ConocoPhillips, though that contract will end in 2016 (see below article).

With the new agreement, Hilcorp will continue to be the primary supplier of natural gas for Chugach’s thermal power plants. Hilcorp is the only gas supplier with the reserves, production and storage to fully meet Chugach’s total gas demand.

Currently an estimated 79 percent of the kilowatt-hours Chugach sells come from natural gas fired power plants, with 18 percent coming from hydroelectric projects and 3 percent from wind turbines.

Beginning April 1, 2018, the new agreement between Chugach and Hilcorp cuts the unit price for base gas by 8.5 percent, with increases of 2 percent per year through March 2023.

The new agreement also has "call options" that provide Chugach valuable operational flexibility in managing its gas supply. The options allow Chugach to purchase additional gas to meet changes in short- and long-term gas needs. They also provide the opportunity for firm gas supplies from Hilcorp or the opportunity to purchase gas from other potential suppliers.

Chugach expects RCA action on its filing in September.