Notice of Gas Supply Agreement Terms
Overview
Homer Electric Association, Inc’s (HEA) subsidiary, Alaska Electric and Energy Cooperative, Inc. (AEEC) and Enstar Natural Gas Company, LLC (Enstar) entered into the Special Contract executed January 22, 2024. On December 31, 2024, the parties extended the Special Contract through the Letter Agreement (Extension) and Amendment No 1 (Amendment) both executed on December 31, 2024, and referred to as the Agreements. The Agreements are effective April 1, 2025, and govern the purchase of natural gas for HEA for the next six years. For more specifics on the Agreement please see HEA’s recently submitted Tariff Advice Letter No. 471-32 filed with the Regulatory Commission of Alaska here.
History of HEA Gas Supply Agreements
Prior to April 1, 2024, HEA met its natural gas needs through a 5-year supply contract with Hilcorp. Prior to entering that contract, HEA attempted to secure natural gas from other suppliers by breaking the overall contract volume HEA sought into smaller tranches in the hopes of securing responsive natural gas bids from multiple producers, but Hilcorp was the only qualified supplier agreeing to provide HEA with a bid. In 2022, Hilcorp informed the Railbelt utilities, including HEA, that it would not renew or extend any of its natural gas contracts with utilities after those contracts expired, ultimately leading HEA to secure natural gas from Enstar through the Special Contract and Agreement.
There are some differences between the HEA’s prior firm gas supply agreements and the Special Contract and Agreement which is interruptible for the first year. Firm natural gas contracts guarantee a specific capacity for natural gas delivery (with exceptions usually only for force majeure), while intermittent contracts allow for interruptions or curtailments. An "intermittent” gas contract, often referred to as an “interruptible” contract, allows a natural gas supplier to potentially reduce or cease gas deliveries without the obligation of securing alternative sources gas to cover the natural gas volume contracted.
In the event that a natural gas interruption occurs, HEA may limit the supply of electric energy and initiate its curtailment action plan. HEA's curtailment process, which includes energy conservation measures and rotating outages for its Members, and how notice to its Members will be provided, is set out in Section X (10) of its tariff (Tariff sheet Nos 72 to 73).
Overview of Agreement Terms
Under the Agreement, Enstar has the obligation to provide HEA with natural gas on an intermittent basis for the first year of the Agreement. Accordingly, should a natural gas interruption occur, Enstar would not have a contractual obligation to secure additional natural gas supplies for HEA to cover that shortfall [1] because the obligation of covering the shortfall contractually belongs to HEA. Purchasing natural gas on the spot market, outside of a gas supply contract, is usually more expensive.
Although the Extension is offered on an interruptible basis, per its terms, Enstar has committed to continuing to seek a firm supply of natural gas for HEA over the coming year while the Extension is in place. HEA is also working with another Railbelt utility to secure additional sources of fuel to assist in the event of a shortfall. The Extension is meant only to bridge the one year of potential intermittent gas supply before HEA’s gas requirements can be addressed by additional supply secured by Enstar through its Furie gas sales agreement.
Broadly speaking, the Extension maintains the Special Contract terms, with the important acknowledgment that Enstar is only obligated to provide HEA gas supply on an interruptible basis, for an additional year beyond the Initial Term. The Extension operates only as a bridge between Enstar’s current existing and contractual supply, and the additional volumes expected to be delivered through Enstar’s Furie gas sales agreement in 2026.
Enstar’s contract with Furie will provide long-term stability to HEA. HEA in no way understates or dismisses the challenges posed by the current gas market available to the Railbelt. However, the Agreements provide HEA and its membership the greatest stability available under current conditions. Likewise, based on the natural gas volumes modeled, planned operational changes, upgrades to generation assets, and ongoing discussions with other utilities and independent power producers (IPP) [2], at a minimum, AEEC, HEA and HEA’s members have the security to know that the entire gas volume necessary to fulfill HEA’s needs can be accommodated under the Agreement.
[1] Under a firm gas supply contract, the supplier (Enstar) generally covers the shortfall by purchasing additional natural gas on the spot market to cover the shortage at an anticipated higher price for the purchaser (HEA). HEA could cover the shortfall by purchasing natural gas on the spot market, from another utility or it could cover the shortfall by using other energy sources whereas a gas supplier would only cover the shortfall by seeking more natural gas. HEA has more options for covering any anticipated shortage because it would seek additional supplies of natural gas and look to any other fuel options too.
[2] To that end, HEA is taking steps to reduce is use of natural gas. HEA plans to significantly upgrade the Nikiski Combined Cycle Plant, which will result in a reduction to its natural gas requirements and is working with several IPPs which, if successful, could lead to further reductions in HEA’s natural gas consumption.