News-Miner opinion: Pending approval from the Alaska Industrial Development and Export Authority, the Interior is about to go from two gas utilities to one. The board of the Interior Gas Utility unanimously approved a memorandum of understanding to purchase Fairbanks Natural Gas and its assets from the state, a move that would unify systems for local gas distribution, storage, administration and billing. Additionally, the merger has the potential to simplify and expedite the Interior Energy Project and its goals. Now it’s time for IGU and AIDEA to work together and make sure that happens.
Though the usual path to lower prices for goods and services is free-market competition, when it comes to utilities, the opposite can be the case. There are immense barriers to entry — in the case of gas utilities, securing gas supply contracts, building liquefaction facilities, transporting the gas and building out distribution lines to individual customers. Those barriers mean that gas companies must pay off their big up-front expenses over time, resulting in higher bills for customers while big loans are paid down. If multiple gas companies serve the same area, they must distribute those expenses across a smaller subscriber base, making customers individually responsible for a greater portion of repayment costs. For that reason, the Regulatory Commission of Alaska must approve the plans of utilities to serve a given geographic area, and areas are typically only served by a single gas provider.
Fairbanks is something of a special case in that regard, because it has two gas utilities — FNG, which serves Fairbanks within the city limits, and IGU, which was established to serve the horseshoe of populated areas to the east, north and west of the city that historically haven’t had gas infrastructure. And though the common conception is that private enterprise can bring customers savings beyond what government offers, the purchase of FNG parent company Pentex by the state in 2015 went the opposite direction. The removal of a profit motive for the gas company’s operation gave gas customers a price break of about 13.5 percent that went into effect quickly after the state took over.
In theory, that sort of savings should extend to the Interior Energy Project as well. A unified utility will cut down on duplication of resources, and without shareholders seeking profit, the unified IGU should give the energy project its best shot at reaching its price goal of $15.50 per thousand cubic feet of gas, the equivalent of heating fuel at $2 per gallon.
Kudos to IGU’s board for recognizing the urgency of the need for the energy project to move forward. There was minor consternation among some members that the price for gas might see a marginal increase — the equivalent of a few pennies per gallon of heating fuel — because of loan terms with the Alaska Industrial Development and Export Authority, but the group rightly decided to not hold out for the perfect at the expense of the very good. For too long, gas efforts have been hamstrung because of insistence on adherence to minor points. Though the group is right to always be looking for cost savings, it shouldn’t do so for relatively meager gains at the expense of the project’s overall progress. In this case, it was right to lift up the group’s goal of securing local gas as fast as possible slightly above its mandate to provide it as cheaply as possible.
Now that the AIDEA board has accepted the memorandum and is moving forward with IGU, it’s time for real progress.
When the utilities are merged, which should be finalized sometime in March, all of the pieces should be in place for the state and utility to march forward down the path of getting more gas to the Interior.