The Fairbanks North Star Borough Assembly should not advance a $7 million loan to the Interior Gas Utility at this time. We need gas in Fairbanks for lots of reasons; chief among them is the possibility of low-cost fuel and the need to clean up our air. Unfortunately, neither of these goals will be achieved with IGU’s current direction, because IGU doesn’t have a real business plan, as admitted by the IGU’s chair at the last Borough Assembly meeting.
IGU’s current build-out will not produce low-cost gas. IGU has not secured a long-term source for low-cost gas, such as is available in the Anchorage market. This part of the plan is simply missing.
As a result, IGU’s gas is priced at market rates, pegged to diesel fuel prices. Equally important, IGU does not have large anchor customers. Every utility depends upon large anchor customers, which provides the biggest return upon investment. Large anchor customers are every utility’s first priority, except for IGU, whose priority seems to be a build-out of the residential customers base. IGU will not be financially viable until the IGU secures major contracts with the military bases, Golden Valley Electric Association, the University of Alaska Fairbanks, Aurora Energy, mines and the large box stores that form the natural anchor customer base for any utility.
IGU is also not addressing its second reason to exist: air quality. IGU is not focusing on gas extensions into areas that are producing the PM 2.5 that has been causing Fairbanks’ dirty air, i.e. areas outside the Fairbanks and North Pole city core areas. Rather, IGU has focused on extending gas into the Fairbanks and North Pole residential cores. It is possible that IGU could help combat air pollution with the right build-out plan, which again focuses on developing an anchor base consisting of Fairbanks’ large fossil fuel users and looking at extending service priority to producers of PM 2.5, which might be assisted with federal Environmental Protection Agency funds.
There are a number of other questions raised by IGU’s practices. Unfortunately, IGU has been very dependent upon the Alaska Industrial Development and Export Authority, which has been at the center of a significant number of failed development efforts across Alaska. AIDEA pushed IGU to purchase Pentex without an independent appraisal, and some have questioned whether IGU overpaid for the asset. Other questionable actions by AIDEA have raised a question whether AIDEA’s involvement is in the best interest of Fairbanks.
Fairbanks gas offers a clear alignment between economics and the environment. But IGU’s lack of a business plan will result in the loss of an opportunity to address either of these goals. Other political considerations seem to be driving IGU in the direction of poor business practices and poor environmental policy. The Borough Assembly should require IGU to develop a sound business plan addressing these concerns before it advances any funds to IGU. Additionally, the Borough Assembly should conduct an independent review of AIDEA’s involvement to determine whether AIDEA has been acting in the best interest of Fairbanks in developing low-cost clean energy to Fairbanks.
Michael Walleri is an attorney and lives in Fairbanks.