Regulators, advocates warn of utility inaction as Alaska gas shortfall looms

State regulators and advocates say they’re growing increasingly concerned about urban Alaska’s energy supply as the region’s utilities hurtle toward a shortfall in local natural gas as soon as 2027 — without a clear plan to replace it.

“The window for making decisions is closing,” said Bob Pickett, a longtime member of the Regulatory Commission of Alaska, or RCA, which oversees the state’s utilities. “If things just sort of slide and there’s no leadership, and we’re in the same position 12 months from now, we are looking at a dire, dire, situation. And people should get angry.”

Utility leaders say they’re advancing plans to build the port infrastructure needed to receive cargoes of liquefied natural gas that they expect to fill the gap. And they say they have contingency plans in the event of a gas shortfall that should keep Alaskans from losing heat and power.

But they also acknowledge that they’re running out of time to begin construction.

“It’s tight. It’s really tight,” said John Sims, who heads the urban Alaska natural gas heating and distribution company, Enstar. Enstar is leading a consortium of utilities as they develop import plans.

“I think all of us in the state — whether you’re a utility, whether you’re a regulator, whether you’re a legislator — you’re feeling pressure right now to get this situation solved,” Sims said.

The utility consortium, representing communities from Homer on the Kenai Peninsula to Fairbanks in the Interior, released a study in mid-2023 that said they faced a shortfall in gas as soon as 2027, leaving them with “little time” to make decisions about how to fill the gap.

The report called for the utilities to choose a “permanent solution” or multiple options to fill the gap by the end of 2023.

But more than a year later, no projects have been formally announced. The utilities say they’re continuing to negotiate with possible partners and sort out the complex details of an investment to develop liquefied natural gas import infrastructure that could cost more than a half-billion dollars.

All four of Alaska’s urban electric utilities — Anchorage’s Chugach Electric Association, Matanuska Electric Association, Homer Electric Association and Fairbanks-based Golden Valley Electric Association — are part of the Enstar-led consortium.

One option they’re considering, natural gas industry executives have said publicly, is hiring a floating vessel that would function as an LNG receiving port for cargoes that could supply all of them. Enstar, a for-profit company, serves more than 150,000 residential and industrial customers, while the four electric utilities, all of which are cooperatively owned, serve a total of just over 200,000 members.

Separately, however, a source with direct knowledge of the matter said that Chugach Electric Association, the largest of the four electric utilities, is also exploring the construction of its own import facility. The project would repurpose shuttered LNG export infrastructure at a property on the Kenai Peninsula owned by Marathon Petroleum Corp.

The source spoke on condition of anonymity due to the sensitivity of the commercial negotiations.

Chugach officials declined to be interviewed but a spokeswoman, Julie Hasquet, said in a prepared statement that the utility is examining “multiple options for importing LNG.”

“Confidential negotiations with potential partners and suppliers are well underway,” said Hasquet. “We are evaluating options that meet our natural gas needs for 2028 and beyond, and we will select the options that best serve the needs of our members.”

Short-term certainty, long-term flexibility

At a board meeting in December, a top Chugach official, Trish Baker, said the utility may need to ask for help from state and federal regulators to “grease the skids” to make sure that permitting for LNG imports and storage infrastructure moves efficiently.

“Those are really, really key things that we need to do,” she said. “Timeline is such that it would be best to avoid any delays.”

This is not the first time that urban Alaska’s utilities have faced a shortfall of gas, which is used to generate nearly all of the region’s electricity and to heat much of its housing and businesses.

For much of the era since statehood, the Railbelt — the area stretching from the Kenai Peninsula through Anchorage to Fairbanks — has enjoyed inexpensive natural gas produced from the nearby Cook Inlet basin, which was so prolific that it supported LNG exports to Asia for decades.

Gradually, though, oil and gas companies slowed their investment in drilling and production. Amid warnings of inadequate supplies, Alaska lawmakers in 2010 passed generous subsidies that helped rejuvenate production.

But by 2022, Hilcorp, the company that currently produces more than 80% of the Inlet’s gas, warned the urban utilities that they should not expect to renew their current contracts at the same levels when they expire. That kicked off the consortium’s work studying possible replacements.

Some policymakers and oil and gas industry boosters oppose importing LNG, saying utilities should be able to obtain more gas locally — and, in the longer-term, from a proposed state-sponsored gas line that would connect Alaska’s North Slope oil fields with urban areas.

But the utilities have largely dismissed those responses to the near-term shortfall, saying they can’t depend on industry to drill more Cook Inlet wells or on the state to raise the billions of dollars needed to build the pipeline.

“An LNG project in the near-term is likely a reality,” said Julie Estey, chief strategy officer at Matanuska Electric Association. “If there’s something that comes between now and then, that’s great. But we don’t have any line of sight or certainty to that, and we’re responsible for keeping the lights on.”

Estey said Enstar is leading development of specific plans for an import facility. But Matanuska Electric Association is also asserting its own priorities, she added: It wants “short-term certainty” that it will have access to LNG, combined with “long-term flexibility” that it can reduce its purchases once other sources of energy come online.

That said, MEA wouldn’t rule out signing a 10-year contract for imported LNG, based on what Estey described as a minimum eight-year timeline before projects like wind farms, a coal plant with carbon capture technology or a state-sponsored gas line could be operating.

The utility currently generates some 85% of its electricity from gas, all of which comes from a Hilcorp contract that ends in early 2028.

“As we look at our demand for electricity and the opportunities for industry, which keep growing, we feel like gas is going to continue to be a cornerstone,” Estey said. “As we look towards that 10th year, ideally we’re reducing our gas significantly. But the line of sight on all of the different things that need to happen to make that a reality — it’s eight to 10 years before we’re making a meaningful impact.”

A ‘new normal’?

Renewable energy advocates say they’re growing increasingly worried that the utilities, as they develop their import plans, could end up proposing projects that lock in dependence on fossil fuels without much time for regulators or the public to scrutinize them.

They say that’s another reason state lawmakers should adopt one of their legislative priorities: a renewable portfolio standard, which would require the utilities to generate increasing proportions of their power with green sources by specific deadlines.

Such a policy could help force the utilities to insist on more flexibility in any LNG contracts over a shorter timeline, said Antony Scott, an analyst at the Renewable Energy Alaska Project advocacy group. Typically, those contracts require customers to buy minimum quantities over a particular schedule, he added.

“The utilities pushing this thing to the brink reflects their difficulty in coordinating their plans and operations,” said Scott, a former state regulatory commissioner. “That’s why we need a renewable portfolio standard. We need the Legislature to set some clear directions and guidelines.”

In the meantime, state regulators are starting to press the utilities on their plans in case a near-term gas shortfall develops.

At a meeting of the Regulatory Commission of Alaska in November, the agency called in the head of Homer Electric Association. Homer Electric Association is the smallest of all the urban utilities and uses the least amount of gas, but its current supply contract, with Enstar, expires at the end of March 2025 and it hasn’t announced its plans to fill the gap.

At the hearing, Homer Electric Association’s general manager, Brad Janorschke, said the utility expects to extend its Enstar contract, adding that the expiration is “not one of the top issues that keeps me up at night.” But he acknowledged, in response to questions from the commissioners, that his utility does not yet have a “firm commitment” from Enstar.

The commissioners also pressed Janorschke on what his utility would do in the event it doesn’t have enough gas to meet its members’ demand for electricity. Janorschke said Homer Electric Association doesn’t have the ability to distinguish between residential customers, businesses and hospitals if it needs to limit service, and he said all of his large customers also depend on natural gas for their backup generators.

That prompted a sharp response from Pickett, the commissioner, who said Alaska’s urban utilities are pushing toward not just emergency shutoffs but “a new normal in which you have insufficient fuel supplies — and so, in essence, you’re going to be rationing electricity.”

“If I’m a business and I’ve got 20 or 30 employees and all of a sudden, I’m going to be told that every six hours, I have a three-hour blackout … if I’m a hospital, you can’t deal with that,” Pickett said.

In a follow-up interview, Pickett said the commission would also be inviting leaders from the other urban utilities to offer testimony on the state of their gas supplies.

A ‘fair amount’ of complacency

Utility executives say they should still be able to meet demand even if an LNG import facility isn’t fully built by the time a significant gas shortfall develops.

Sims, Enstar’s president, said gas could also be shipped to Alaska in sealed containers or trucked from Canada or the North Slope — which could cost as much as three times as Cook Inlet gas but would only be needed in small quantities at first.

Estey, from Matanuska Electric Association, said her utility is examining whether, as a last resort, it could turn to diesel fuel to generate substantial amounts of its power, which also would be a substantially pricier option than the status quo.

“We’re running through all these worst-case options as we look at: If nothing else changes between now and then, what do we have available to us?” she said. “We understand that there may be a gap, and we’re kind of planning on there being a gap before LNG comes in full force.”

Pickett, from the regulatory commission, said his agency regulates utilities, and “it doesn’t run them.” But it does have oversight authority of rates, planning and compliance with state-issued certificates that require the utilities to provide adequate and safe service, he added.

“As necessary over the next year, we are going to keep the spotlight on it,” he said. “There’s a fair amount of complacency, and people think they have a lot more time than they do.”

Nathaniel Herz is an Anchorage-based reporter. Subscribe to his newsletter, Northern Journal, at northernjournal.com. Reach him at natherz@gmail.com.