The latest contract to supply Chugach Electric Association with the natural gas it uses to generate power has been OK'd by state regulators.

At a minimum, Chugach's new agreement with Marathon Alaska Production will provide gas for the utility from April 1, 2011 through March 31, 2013. The contract contains provisions for two extensions, one through the end of 2013 and a second through the end of 2014.

The contract was approved by the Regulatory Commission of Alaska on May 17.

The Marathon contract fills what had been a 50 percent unmet need for fuel during the time of the agreement. In 2009, the RCA approved a contract between Chugach and ConocoPhillips that will provide half the gas Chugach requires from April 2011 through 2015, and 25 percent in 2016. Chugach uses natural gas to generate about 90 percent of the kilowatt-hours it sells annually, with the balance coming from hydroelectric projects.

The contract uses a pricing mechanism tied to the New York Mercantile Exchange Index of futures gas contract prices. The price varies by contract period, type of gas (base, swing or excess) and deliverability commitment. The contract contains a price collar (which sets a floor and ceiling price), initially established at $5.90 to $8.90 per thousand cubic feet, or MCF. Chugach's current average price for gas is around $4 per MCF, but in 2009 ranged from $4.89 to $6.64 per MCF.

Chugach used 27 BCF of gas in 2009. The new Marathon contract would supply the utility with 26.2 BCF of gas through March 2013, and an additional 16.1 BCF if the extensions in the new contract are exercised.

In announcing its decision, the RCA noted it had received letters of support for the contract from Marathon, Mayor Sullivan, the Anchorage Chamber of Commerce, the Resource Development Council of Alaska and ENSTAR Natural Gas Co. No comments opposing the contract were filed with the RCA.

Chugach is the largest electric utility in Alaska, providing power for Alaskans throughout the Railbelt through retail, wholesale and economy energy sales.