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Don’t delay natural gas decision: Regulatory commission heard some good, bad and ugly arguments

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Posted: Sunday, October 6, 2013 12:40 am | Updated: 12:43 am, Sun Oct 6, 2013.

Fairbanks Daily News-Miner editorial

 Testimony about competing natural gas delivery plans before the Regulatory Commission of Alaska featured some sharp exchanges during the past few weeks, but the dispute isn’t about who has the best zingers. It’s about who can provide the cheapest gas to the most people in the Fairbanks area.

Fairbanks Natural Gas attorney Mark Figura belittled the Interior Gas Utility by calling it a “cheerleader.” The IGU board is composed of very experienced individuals in the fields of engineering, public administration and utility and business operations. They’re capable lifting items far heavier than pom-poms.

The IGU’s attorney dipped into even uglier territory. He suggested FNG’s president would be incapable of committing even to a marriage proposal without putting conditions upon it.

But these are attorneys, after all, and they are performing as they see fit to make the arguments of each side stick in the minds of the commissioners.

Fortunately, the attorneys for each side also provided a vast amount of detail for the commissioners to mull.

The fundamental question is which utility has the most credible plan to deliver gas to the most people at the best price. Of course, there are trade-offs between the two primary factors — price and expanse. The farther the gas lines go into the less densely populated areas of the borough, the higher the price of the gas will become for everyone.

FNG proposes to lay pipe in a smaller area than the IGU proposes. So the private company gets lower marks for the number of people it proposes to serve. While that smaller territory would help keep gas prices down, the company also has some serious cost challenges when compared to IGU, a public utility. FNG must pay state, federal and local taxes, must return a profit to its Outside owners and lacks access to tax-free bonds and government grants to raise capital.

During the hearing, the IGU also made much of FNG’s failure to expand service in Fairbanks during the past decade, suggesting the company can’t be trusted to carry out an expansion if it is granted the territory.  

The IGU proposes to serve a much larger area, but FNG claims the utility’s assumptions are too rosy and its system won’t deliver gas at the price promised. In addition, the IGU has no contracted source of gas. It has no experience in the business. And, as a government entity, it could suffer from politics and all the expenses that can generate.

These are all legitimate arguments to ponder. However, a few observations seem possible at this point.

First, the IGU’s complaint about FNG’s past failure to expand doesn’t seem terribly relevant looking forward. If chosen to serve the area as a rate-regulated utility, the FNG would be eligible for a guaranteed return on any build-out. That would give it great incentive to expand rather than to hold back and cherry-pick as it has in the past. FNG now can also build gas storage with a state subsidy, eliminating what might have been a bottleneck in the past.

Nevertheless, it’s hard to deny the disadvantages inherent in FNG’s proposal. The company proposes to serve a smaller area than the IGU. Its tax expenses and need for profit-taking set up higher costs from the get-go.

In addition, the IGU’s lack of experience and governmental liabilities can be mitigated by contracting most of the work to a private entity.

We hope commissioners are able to give these arguments an impartial, fact-based review. However, as Gov. Sean Parnell said in an op-ed column published here last week, the commission shouldn’t take too long to decide. The commission has suggested a decision could come in December, but that seems like an unnecessarily lengthy review. Fairbanks needs cheaper energy soon, no matter who provides it.

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