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Parnell announces $355 million Interior Alaska energy plan

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Posted: Friday, December 7, 2012 1:08 pm

Updated at 10:30 p.m.

FAIRBANKS—Gov. Sean Parnell on Friday announced a $355 million mixture of loans, tax credits and grants to help bring North Slope natural gas to the Interior and other parts of Alaska.

The money, mostly as low-interest loans, would be used to begin construction on a North Slope natural gas liquefaction plant and to help develop private or municipal natural gas distribution systems in the Fairbanks area.

The plan includes $275 million of loans and bonding authorization available through Alaska Industrial Development and Export Authority for infrastructure projects.

An additional $50 million would be available in general fund grants and $30 million in existing gas storage tax credits.

Parnell said the funding is designed to be flexible depending on the proposals of utilities such as Fairbanks Natural Gas and Golden Valley Electric Association, which have both proposed gas treatment and trucking facilities.

“This money, all this value, is flexible; it can move to liquefaction or it can move to distribution,” he said. “For example, that $50 million general fund could go to AIDEA as its equity share in a liquefaction facility on the North Slope. But I will always come back to those guiding principles of what’s the lowest cost for Fairbanks consumers to get this done.”

The LNG plant is a costly piece of infrastructure critical to a number of proposed projects to truck gas to the Fairbanks area for home and industrial use. AIDEA and the Alaska Energy Authority are seeking expressions of interest from any parties interested in financing, developing and operating the plant.

The proposed infrastructure also would be designed to supply rural Alaska with the potential for propane and gas to be distributed via the river system. Initial talks also have begun to explore the possibility of trucking gas to Southcentral to supplement Cook Inlet.

Parnell said he will rely on the economics of the proposals to determine where the funding will go.

FNG President and CEO Dan Britton called the governor’s proposal good news, saying his company is well-suited to undertake construction of the LNG plant.

“We’ve always been willing to build the plant as long as we had some guarantees that take away a number of the risks associated with the project,” he said. “Takeaway, I think it opens up some strong opportunities to benefit the community.”

The overall goal is to deliver gas at about $12 to $15 per 1,000 cubic feet to homeowners, Parnell said.

That would cut heating bills by nearly half compared to heating with oil. Parnell said estimates by other agencies show residents could save as much as $650 per month in the winter by switching to natural gas from oil as well as benefiting from gas-fired electricity.

Because of the build-out constrictions and the cost of converting a home to natural gas, not everyone will benefit from such savings in 2015, when the gas is expected to start flowing.

FNG has a little more than 1,000 residential customers, but Britton said his company has existing service lines and that it’s just a matter of getting more gas to expand distribution to the city of Fairbanks.

“We’re positioned right now to add new residential customers the day we relieve our supply constraints,” he said. “The increased storage facilities will bring new residential customers on in 2014 and more in 2015 with LNG trucking.”

The recently formed Interior Alaska Natural Gas Utility had requested $100 million in grants to begin its build-out in the North Pole area.

Borough Mayor Luke Hopkins, a strong supporter of the utility, said he was disappointed that there’s just $50 million in grants for both projects. He said he’s particularly worried that loans will be passed along to the consumer.

“$50 million? I was hoping to see a lot more,” he said. “I ask, is this the plan that gets us the lowest cost energy? We have to see how all this breaks out. When you have bonds that have to get paid back, that gets all put on the back of the ratepayers.”

GVEA Interim President and CEO Cory Borgeson also was critical of the heavy reliance on low-interest loans in lieu of cash grants.

“He’s proposed $50 million grant money, and that’s certainly something that’s appreciated and it will bring down the cost somewhat,” he said.

However, the Alaska Energy Authority recently completed an analysis showing low-cost financing from the state would provide the lowest price for consumers, Parnell said.

Borgeson also said the plan amounts to building blocks and not a clear path forward for the Interior.

Hopkins noted the plan is far from finalized. Most of the funding still must go through the Legislature for approval.

“I think the governor should have taken a stronger stand,” he said. “A grant would have certainly made it a lot lower cost, but that’s what we get to talk to the Legislature about.”

Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.

Governor’s energy plan

• What: $355 million to build a North Slope plant and Fairbanks-area distribution system

• Funding:

$275 million in loans and bonds

$50 million in state general funds

$30 million in existing tax credits

• When: First gas delivery in late 2015

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