Southcentral utilities warn of steep rate hikes as Cook Inlet gas dwindles

Matanuska Electric Association and ENSTAR told state lawmakers Tuesday that Southcentral Alaska residents face steep electricity and heating cost increases starting in 2029, when existing Cook Inlet gas contracts expire and utilities shift to liquefied natural gas imports priced as much as double current rates.

Cook Inlet production has declined to roughly 200 million cubic feet per day. ENSTAR alone needs up to 320 million cubic feet daily during winter peaks.

MEA residential customers can expect bills to climb roughly 5% per year through 2029 due to rising fuel costs, then jump an additional $21 to $31 per month once the utility begins importing LNG. ENSTAR customers will see similar increases starting in 2033, when the gas distributor's last firm Cook Inlet contract expires.

Schools and businesses face the same trajectory. The Anchorage school district alone would pay an additional $1.5 million per year under a 30% rate increase, according to ENSTAR President John Sims.

A 2010 state-commissioned study projected Cook Inlet would face gas shortages after 2018 if drilling activity remained at 13.6 wells completed per year. The study estimated the basin would need $1.8 to $2.8 billion in capital expenditures to meet demand through 2020. Production has continued to decline since then.

ENSTAR data shows Cook Inlet average daily gas production has dropped from approximately 400 to 450 million cubic feet per day in 2010 to around 200 million cubic feet per day in 2026.

"One of the reasons why that's important is in the winter months, ENSTAR has to be prepared to deliver up to 320 million a day," Sims told legislators. "So what's being produced out of Cook Inlet today by itself isn't enough to meet daily demand for customers in the wintertime."

MEA's all-requirements contract with Hilcorp expires April 1, 2029. The utility currently burns 6 billion cubic feet of natural gas annually to generate 84% of its power. Future demand could reach 8 to 13 billion cubic feet as the Mat-Su Valley grows.

MEA has extended its natural gas supply contract to April 2029 and added new gas storage capacity. The utility is also exploring investments in diesel to maintain reliability. MEA's power pool contract with Chugach Electric Association has resulted in $23.2 million in combined savings.

ENSTAR pays $10.80 per thousand cubic feet for Cook Inlet gas today. LNG imports will cost $16 to $22 per thousand cubic feet, depending on volatile Japan-Korea Marker prices, shipping, and terminal infrastructure costs.

"Yeah, I think from Enstar's perspective, when we think about what's changed the most in the last 3 years, is really the cost of alternative options. So when you think back a couple years ago, you know, we were buying gas in Cook Inlet for around $8. This March we paid $16," Sims said.