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Public utility would serve all: Costs are lower and mandate is broader than private operator

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Posted: Sunday, September 30, 2012 12:00 am | Updated: 11:33 am, Mon Jan 21, 2013.

Community perspective

Absent definitive plans for a natural gas pipeline that will provide gas to Fairbanks, there is general consensus that trucking natural gas from the North Slope to Fairbanks is the best short-term solution to our high energy costs. In order to facilitate getting natural gas to as many residents and businesses as possible, five assembly members (myself, Diane Hutchinson, John Davies, Karl Kassel and Mike Musick) and the mayor sponsored an ordinance to create the Interior Alaska Natural Gas Utility.

To authorize and create the utility, all three of the community’s local governments need to work together. That process is ongoing. The purpose of the new utility is quite simple — to facilitate if possible, or provide, if necessary, affordable natural gas to the largest number of people in the Fairbanks North Star Borough in the shortest amount of time. The new utility will need to participate in public-private partnerships in order to operate in a cost-effective manner — as a comprehensive community solution will require multiple approaches to be successful.

Many might question how a municipally owned entity could solve our high energy costs. But in fact, there are three compelling reasons to create the new utility. First, there is not an existing entity whose purpose is to provide affordable natural gas for space heat throughout our entire community. Second, there are significant financial benefits to public ownership of a utility. Finally, a solution is needed that is focused on providing the lowest-cost gas possible to consumers — not settling for market-driven pricing that comes in just less than the cost of diesel.

Three organizations are currently pursuing trucking natural gas to Fairbanks. Golden Valley Electric Association is exploring options to lower the electric costs to ratepayers. Flint Hills, in partnership with GVEA, is also exploring gas trucking to reduce its operating costs, and increase the competitiveness of its products. Fairbanks Natural Gas, a non-rate regulated utility, is trying to increase its available supply of natural gas in order to increase its customer base. FNG provides natural gas for space heat to around 1,200 customers. It is certificated to provide natural gas to 8,500 customers in the mostly densely populated area of Fairbanks.

If any of these three organizations are successful in trucking gas to Fairbanks, there is no guarantee that the 25,259 currently unserved residences and businesses in the borough will have access to natural gas for space heat.

IANGU will be in a position to represent the needs of the community, so when a plant on the North Slope does get built there will be an adequate supply for all of us. IANGU can work on building out the gas distribution system, and not just to the most densely populated areas of the borough. A state-funded study on a gas distribution system (Northern Economics, July 2012) found that construction and operation of distribution system has the potential to reduce costs for space heating by up to 60 percent. It has to be someone’s job to move that distribution system forward with the primary goal of improving the quality of life in Fairbanks, not the goal of improving the bottom line to shareholders.

Creation of a municipal utility brings with it financial advantages. Under public ownership, there are no shareholders, no profit return, no state corporate income tax, no federal income tax, no property tax, lower borrowing costs and local control. Conversely, for-profit ownership (such as FNG) pays shareholder dividends, makes a significant return on equity, pays state corporate income, federal income and property taxes, has higher borrowing costs and must pay taxes on any grant funds it receives. All these costs are built into the rate customers pay, so any reduction in costs results in a direct benefit to ratepayers.

Finally, IANGU will represent the interests of the public — charged at creation to work for affordable gas for the entire community not just the areas that it is economic to serve. The residents of the Interior need natural gas that is competitive with the rates paid to heat homes in Southcentral, not rates that are just slightly below the cost of diesel. IANGU is being created to make that happen.

Hope is not a strategy to meet the space heating needs of the entire community — an energy utility charged with this specific responsibility replaces hope with a real strategy. When the private sector is unwilling or unable to respond to the needs of the entire community, it is time for government to serve its constituents. IANGU can provide a service motivated only by furthering the public good.

Nadine Winters is a private consultant who was elected twice to the Fairbanks North Star Borough Assembly. Her term-limited assembly service will end in October.

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