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Gas requires cooperation: GVEA could buy Fairbanks gas utility

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Posted: Sunday, July 15, 2012 12:00 am | Updated: 10:37 am, Mon Jan 21, 2013.

Community perspective

Once again, all eyes are looking to natural gas to lower the high cost of energy in the Interior and solve our air quality problem. Enstar wanted to put gas here at Anchorage prices in the mid-1980s, but our Chamber of Commerce turned them down.

Fourteen years ago, Fairbanks Natural Gas installed a limited distribution system and began trucking gas from Cook Inlet. FNG continues to offer clean space heating at marginal cost savings. However, FNG’s Cook Inlet operation is supply-limited and hampers expanding their 70-some mile distribution system; FNG is now focused on developing a North Slope source and trucking from there.

Three years ago, FNG, GVEA and the Alaska Gasline Port Authority put forth a plan that would truck gas here from the North Slope promising significant savings. The Fairbanks North Star Borough, a partner in the port authority, blocked that plan, and so the authority backed off and remains uninterested in pursuing it.

Recently, the borough’s development arm, Fairbanks Economic Development Corp., completed a study that focused on getting gas to the community. Study results show that trucking gas and propane will both lower energy cost and clean the air. It calls for an ownership entity that meshes well what is being proposed here. The study is undergoing public presentations.

Further, Flint Hills Resources, which owns a North Pole refinery, has expressed an interest in trucking gas over the Dalton Highway to lower its cost of producing fuels.

So now there are three entities with separate but similar reasons to truck gas from the North Slope. It would seem they would get together and build facilities large enough to accommodate all three.

Not so easy, though. FHR operates as an unrestricted, private, profit-oriented company, and its goals differ from GVEA, a cooperative, member-owned utility, and FNG, a privately owned utility.

Flint Hills appears willing to make an out-of-pocket investment for their gas needs and serve both GVEA’s and FNG’s needs — seemingly a generous gesture. But it comes with a price. Flint Hills seeks to maximize profits from investments, and the price for gas from them will tend to reflect market rates.

In contrast, both GVEA and FNG are regulated by the Regulatory Commission of Alaska, which limits profits for utilities. Both can seek capital grants and other cost-reducing measures that can significantly reduce the cost of power and space heating.

Both FNG and GVEA have long-term contracts with producers. FNG’s logistical experience far outweighs that of GVEA’s, while GVEA’s utility management ranks higher. And they share a common customer area and mission. The practical solution is to bring the two together — ideally by GVEA acquiring FNG and hitting the ground running with a highly experienced team.

But could Flint Hills benefit by getting gas from expanding GVEA? Perhaps — if allowed to purchase gas at utility rates to make its product and sell at market rates. It is not an uncommon practice, and we should encourage it, because the refinery is a key economic engine in the Interior and we need it to prosper and increase its competitive posture over vaster markets, reversing recent downturns. And our community will grow with it — and keep our military installations.

Assuming that community goals are best achieved by GVEA purchasing FNG, how can we lower the cost of energy further? There are several obvious ways.

Construct infrastructure and acquire logistical equipment with capital grants. Grant monies cannot be rolled into user rates. For example, if all construction and equipment could be done with grants — rates would reflect only the cost of gas, operations and a reasonable profit. Grants ought to be sought from both state and federal sources, especially from the U.S. Environmental Protection Agency since natural gas is the only means of solving the air quality problem. We should insist on the EPA’s participation.

The Alaska Constitution clearly mandates that our residents have priority use of our natural resources, and we should insist on it — perhaps at a token or state-indexed rate.

By contract with producers, the state owns 12.5 percent of gas on the North Slope, so can we further reduce our purchase price? There’s a hang-up. Apparently, the contracts specify that the state gets 12.5 percent of owner-marketed gas. Natural gas that is flared or used to re-pressurize oil fields and operate the fields is not marketed (technically); thus, no state ownership accrues. So “sic ’em,” legislators.

We only have a short window to cash in on this or a similar concept, and our town’s first task is to bring both GVEA and FNG on board.

Bob Thomas of Fairbanks is a professional engineer.

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