Interior Energy Project progress is muddled
The Interior Energy Project briefly took center stage in the state House when an Anchorage legislator’s proposals raised the ire of Interior leadership.
Rep. Mike Hawker, R-Anchorage, added amendments to project legislation that would require the Alaska Industrial Development and Export Authority to get the Legislature’s approval of a project plan before moving forward.
House Bill 105, Gov. Bill Walker’s bill intended to lift the North Slope project restriction on AIDEA’s financing authority for the work, narrowly moved out of the House Resources Committee April 10 with Hawker’s four amendments attached.
Interior Energy Project manager Bob Shefchik said the stipulation for legislative approval of a new plan would push first gas to Fairbanks back at least a year because the project would have to essentially sit idle until next session. The Resources version of HB 105 would also dampen his ability to attract private partners to Interior Energy Project because it strips AIDEA’s authority to move forward, Shefchik said.
AIDEA’s goal has long been to get natural gas to Fairbanks by the end of 2016. When the numbers didn’t crunch on a North Slope plan, the IEP team began looking to Cook Inlet, with its resurgence of available gas, which has much lower construction and transportation costs.
Shefchik said he hopes to have a plan and private project partner in place this summer.
Other amendments introduced by Hawker would restrict AIDEA from purchasing gas reserves and require the Fairbanks-area gas utilities to be rate regulated.
State law allows public utilities to choose if they want to be regulated by the Regulatory Commission of Alaska. The private utility Fairbanks Natural Gas Co. has a pending agreement to be sold to the AIDEA and also has a rate case before the RCA, while the Fairbanks North Star Borough controls the Interior Gas Utility.
RCA regulation could limit the flexibility of the of the financing AIDEA could use on the project to keep natural gas prices down as early demand grows, according to Shefchik.
FNSB Mayor Luke Hopkins, Fairbanks Mayor John Eberhart and North Pole Mayor Bryce Ward wrote a letter to Hawker dated April 10 asking him to “cease and desist from any further attempts to delay, halt or in any other way obstruct the progress of the Interior Energy Project.
The Interior mayors noted that their constituents pay some of the highest energy prices in the country when compared to similar-sized areas with some of the worst air quality in the world while Hawker’s constituents rely on state-subsidized Cook Inlet gas production.
“It is difficult for us to see these efforts as anything other than an attempt to maintain a state-funded monopoly on Alaska’s gas — for the sole benefit of the residents of Southcentral Alaska,” they wrote.
Removing the “on the North Slope” restriction from the IEP financing appeared to be little more than a formality at the start of the session, as Rep. Steve Thompson, R-Fairbanks, noted in a Finance Committee meeting April 14.
Hawker said in an interview that he wants to know how the project would impact the “very fragile” gas marketplace in Cook Inlet and the availability of producers to deliver gas to utilities already reliant on natural gas.
He also said he would expect a special session to be called by the governor to approve a plan without delaying the Interior Energy Project.
“I certainly don’t think Mr. Shefchik is in position to determine what the ultimate effect on the timing and outcome of the project is because that’s a complete unknowable,” Hawker said.
“The Legislature and I certainly don’t feel comfortable writing a blank check without knowing first of all what we are writing the check for and secondly how many more checks we’re going to have to write after the first one. Mr. Shefchik testified in committee that the funding AIDEA is attempting to access is just the beginning of the overall amount of government subsidy that is going to be required to make whatever their overall project plan is going to be. I would like to know what their plan is before writing that check.”
Shefchik has said the Fairbanks North Star Borough could possibly provide “backstop” protection for private loans to residents who need to finance heating system conversion costs that could exceed $10,000.
Hawker’s amendment requiring legislative approval of a project plan was stripped from the version of HB 105 that passed House Finance April 14.
The Finance version of HB 105 passed the House late April 15 on a 37-2 vote. Hawker voted for the bill. It had been moved to the Senate Finance Committee as of April 16.
The mirror bill in the other body, Senate Bill 50, has moved slower but with much less controversy.
Hawker has been vocal about his concern regarding AIDEA’s intent to purchase the parent company to Fairbanks Natural Gas since the deal was announced in late January. He said he’s not comfortable with the state competing with multiple private sector groups trying to get gas to the Interior.
Private firms have said they could deliver gas to residents at a final price of about $20 per thousand cubic feet, or mcf, of gas. The Interior Energy Project’s target is $15 per mcf. From the start, project officials have said AIDEA would use its state-backed financing authority to help lower the cost of privately delivered gas.
AIDEA leaders say the utility purchase would help drive down the final cost of Interior gas through efficiencies found by combining the utility networks.
Hawker also said in an interview that he tried to discuss his concerns about the project with those in the know, but couldn’t because they weren’t allowed to talk to him.
“I have heard the administration directed some senior members of the Department of Commerce and the AIDEA board and denied them their ability to communicate with me,” Hawker said.
Deputy Commerce Commissioner Fred Parady serves on the AIDEA board in the stead of Commerce Commissioner Chris Hladick and is working closely on the Interior Energy Project.
Shefchik said Hawker is “unequivocally” incorrect and any directive regarding the project would go through him.
Walker spokeswoman Katie Marquette said no communications restriction have been put on anyone in his administration about the Interior Energy Project; rather, officials have been encouraged to reach out to anyone with questions.
“There have been no handcuffs, no restrictions, no limits on anything other than judgments on ascribing things that are actually happening,” Shefchik said.
A majority of the $332.5 million Interior Energy Project package passed in 2013 is low-interest state loan and bond authority. AIDEA has issued $52.7 million in loans for gas distribution buildout to the utilities and spent $12.4 million of a $57.5 million direct appropriation, primarily on engineering and early construction work for the North Slope plan.
To the availability of Cook Inlet gas for everyone, the full annual Interior gas demand of about 9.5 billion cubic feet, or bcf, per year would be about 10 percent of the draw on Inlet reserves last year, according to AIDEA
The House passed legislation to offer tax credits to encourage the restart of the Agrium Inc. fertilizer plant in Nikiski April 13. When fully running, the Agrium plant requires 60 bcf of Cook Inlet gas per year.
Hawker voted for the tax credits in House Bill 100.
The Senate passed its version of the capital budget April 11, which moved the remaining $45 million from the Legislature’s 2013 direct Interior Energy Project appropriation to the Alaska Housing Capital Corp.
What that means for AIDEA’s ability to access the money remains to be seen. Shefchik said he would likely use at least part of the cash to buy into a Southcentral gas liquefaction facility this year if that is the chosen plan; with AIDEA invested as an equity partner the LNG processing could be made cheaper.
He also said he doesn’t know if AIDEA can spend the money from what is essentially a temporary savings account.
Initial demand could be met with a total $60 million investment in additional Southcentral LNG processing capacity, according to some working on the project.
Senate Finance co-chair Sen. Anna MacKinnon said in a press briefing April 14 the reappropriation is a way to make sure the money isn’t “swept up” from the general fund during a time of deficit spending.
However, Legislative Finance Division Director David Teal said AIDEA would not be able to access the funds without further legislative approval.
How and when the Legislature will get the spending authority back to AIDEA remains to be seen.
The capital budget was in House Finance as of April 15.
Elwood Brehmer can be reached at [email protected].