AIDEA moves to advance Interior gas project, shed utility

  • Ice fog settles over Fairbanks in this file photo. Improved air quality along with lower heating costs are the chief goals of the Interior Energy Project, which took a step forward with the consolidation of area gas utilities as the state-owned Alaska Industrial Development and Export Authority agreed to sell the parent of Fairbanks Natural Gas Co. to the borough-owned Interior Gas Utility. (AP Photo/File/Fairbanks Daily News-Miner)

The Alaska Industrial Development and Export Authority board of directors unanimously approved a resolution to fold Fairbanks Natural Gas into the borough-owned startup utility Wednesday afternoon.

Consolidating Fairbanks Natural Gas, and more specifically its parent company Pentex Alaska Natural Gas Co., into the Interior Gas Utility is a key step to ensure the success of the Interior Energy Project, according to just about everyone involved.

That’s because a single gas utility under local government control should be able to reap business and operational efficiencies to help lower the cost of natural gas to Fairbanks-area customers.

AIDEA’s resolution followed a similar action by the IGU board a day prior. The state-owned authority and local utility will now try to hammer out the final details of a $333.6 million utility sale and lending package by March 31, per the terms of a draft memorandum of understanding made public about a week earlier.

The tentative agreement projects a delivered natural gas price of $15.50 per thousand cubic feet, or mcf, of gas; in line with AIDEA’s longstanding target of $15 per mcf, which roughly equals $2 per gallon heating oil.
It also includes the sale of Pentex to IGU for $58.2 million. Payment for Pentex will be rolled into repayment of loans and bonds AIDEA will lend to expand IGU’s infrastructure as customer demand grows if the deal is culminated.

The financing portion of the larger deal would come from the $332.5 million worth of low-interest loans, bonds and grant money approved by the Legislature in 2013 for the Interior Energy Project.

Those funds cannot be accessed, however, until AIDEA and IGU have secured a gas supply contract from a Cook Inlet natural gas producer. That is due to a clause in the 2015 legislation that allowed ADIEA to change the IEP to an Inlet-sourced LNG trucking project after efforts to build a North Slope LNG plant were deemed too expensive.

AIDEA purchased the formerly private utility company in 2015; a deal which drew mixed reviews politically but ended up lowering rates for Fairbanks Natural Gas customers slightly because under state control the small gas utility does not have to account for the same tax and profit considerations as it did under private investors.

AIDEA board member and former state senator from Fairbanks Gary Wilken was briefly emotional before the board’s vote on the resolution. Wilken has been with AIDEA since the inception of the Interior Energy Project, which has undergone major changes and of-late has been challenged by low oil prices — leading to lower fuel oil prices and lessened financial incentive for Interior residents to invest in converting to natural gas.

“There’s been a tremendous amount of work, angst, discussion, but we are where we are and I’m privileged to be associated with the team that has brought us this far,” Wilken said. “Seldom in your life do you get a chance to participate in something that provides benefits for generations to come and this is what we are doing today. This is the first step; because people that come long after us — after we’ve all assumed room temperature — will benefit from the work that’s been done (on the IEP) the last couple of years and I just can’t tell you how proud I am of what we’ve done.

“I’m not ready to pop the champagne corks, but I’m ready to take it out of the case and put it in the refrigerator because I feel good about where we’re headed. I feel good about getting the last piece in place and I feel good about what we’ve done and what we’re going to do for the second biggest city in Alaska — to get clean energy and lay the basis for economic development for Fairbanks and North Pole.”

In nearly the same breath, Wilken also issued a stern recommendation to IGU and Interior Energy Project managers to include language in the final lending and sale contract requiring the utility board to raise customers’ rates when need be, regardless of the popularity of the decision.

He noted that four of the seven members of the IGU board are elected to the post by Fairbanks North Star Borough residents, a fact that has the potential to lead to political, not prudent board voting, he added.

The remaining three IGU board members are appointed each by the mayors of North Pole, Fairbanks and the borough.

Wilken said he is concerned that “we’ll have four elected folks who will not act not as public servants but as politicians and will set rates based not on what’s good for the utility but what’s good for their reelection.”

The worry stems from watching that exact scenario play out with the former City of Fairbanks Municipal Utility System, he said, which deteriorated financially due to elected officials who ignored the recommendations of utility staff to raise rates and sell bonds because the actions would have been politically unpopular, according to Wilken.

“It distresses me that this may happen in 10 years with IGU,” he added.

AIDEA’s IEP team lead Gene Therriault said the tentative agreement has language to hold the IGU board liable for its debt to AIDEA.

Authority board chair Dana Pruhs said he shares Wilken’s concern and urged the final contract to also explicitly require the IGU board to set aside funds for infrastructure upkeep.

 

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
01/19/2017 - 10:26am