GVEA purchase won’t help gas project, but should lower costs

Interior electric utility Golden Valley Electric Association’s decision to assume a more minor role in the Interior Energy Project than some hoped was perhaps the worst news for the project’s prospects in 2015.

The Alaska Industrial Development and Export Authority had hoped the cooperative would line up for two billion cubic feet of natural gas per year, a substantial base demand that would help reduce costs to residential customers. Instead, GVEA settled on a 12-year deal with local refiner Petro Star to fuel its North Pole generation plant mostly with naphtha, committing to 600 million cubic feet of natural gas as a compromise measure.

While this was hard news for the natural gas project, GVEA’s reasoning for making the decision is sound and in the best interest of its members.

In order to make achieving the energy project’s $15 price point easier, backers at AIDEA and in the Interior community were hoping Golden Valley would sign on for 2 billion cubic feet of natural gas, a major base from which to build residential demand in the project’s early phases.

More gas demand would spread costs out further, reducing the burden on residential customers to repay the bonds upon which the bulk of the energy project is being financed. The net difference in gas costs to residential customers with GVEA’s lessened 0.6 billion cubic foot commitment has been estimated at between $0.60 and $1.50 per thousand cubic feet for residential customers.

In a project that has already struggled to achieve its $15 per thousand cubic foot price target, an additional $1 per mcf in cost to customers makes matters even more difficult.

But though GVEA has been — and still is — a major part of the IEP, as an area-wide utility, it has more to consider than the target price for natural gas in Fairbanks and North Pole.

Its overarching goal is cheaper energy for all of its members, many of whom won’t directly benefit from the natural gas project. And the persistent delays that have pushed back the delivery date for gas aren’t easy for residents to abide, much less a utility presented with a long-term, relatively low-cost fuel source. GVEA’s deal with Petro Star for naphtha locks in 12 years of supply at rates comparable to those available now.

If residents could secure a deal like that for their own homes for heating oil, it’s a safe bet the natural gas project would be abandoned altogether. They don’t have that flexibility; GVEA did. It’s difficult to blame the co-op for pulling the trigger on a fuel source that should lower electricity costs for all of its members for years to come.

Nonetheless, the natural gas project remains vital to Fairbanks and North Pole residents. Even in the absence of a trucking or rail delivery system, local gas storage and distribution would be essential for the community to take advantage of gas from the large-scale Alaska LNG plan when it comes online.

And natural gas appears the best — and possibly only — solution to get North Pole’s air pollution problem under control. GVEA has been good enough to maintain a sizeable chunk of commitment to the project — while 600 million cubic feet isn’t two billion, it’s still a big anchor the project needs, especially since the co-op has pledged to take that gas in the summer, when residential demand will be close to nil.

The Interior Energy Project is still a top priority for the community, and GVEA shouldn’t be thrown under the bus for their decision to seek surety in their fuel rates when the opportunity presented itself.

That is, after all, what the IEP itself is all about. Golden Valley just took advantage of the opportunity to bring costs down earlier — and possibly more — than would have been possible with natural gas.

01/06/2016 - 1:51pm