A state plan aimed at speeding the transition to natural gas in Fairbanks reaches a key decision point Tuesday, with the Alaska Industrial Development and Export Authority scheduled to consider a $54 million investment to move the project forward.
The AIDEA board, set to meet in Anchorage, is to hear a report recommending the agency buy Pentex Natural Gas Company LLC, the parent company of the Fairbanks Natural Gas utility, for $54 million, with a closing expected by the end of July. The sale price would be reduced by about $15 million through the spinoff of the company's Point MacKenzie liquefaction plant and other assets to Hillcorp later this year.
The board agenda includes three resolutions to authorize the acquisition of Pentex, approve a plan to manage the company and set rates and provide for the transfer certificates of public convenience and necessity.
AIDEA director John Springsteen described it as a "short-term strategic investment that can play a significant role in helping achieve long-term success for the Interior Energy Project."
The agency completed its due diligence of the proposal and found the purchase would have "significant economic benefits" for Interior residents, including an accelerated switch to natural gas, a reduction in air pollution and an expansion of natural gas storage facilities. "The ultimate goal of this transition will be a single, locally controlled utility serving the Interior," Springsteen wrote.
The agency said it intends to "exit the investment in two years with an estimated return of $2.91 million" -- or about 5 percent -- and expects to help provide the Fairbanks area with the "lowest cost alternative to current energy sources."
The Walker administration has made the Fairbanks energy project a priority, ushering a bill through the Legislature this year that allows AIDEA to consider natural gas from Cook Inlet as a source of supply. AIDEA has a variety of financing tools that Fairbanks utilities are expected to use to get the transfer to local control complete in the next two years, according to AIDEA officials.
The first proposal to convert Fairbanks to natural gas emerged in the 1950s, when a company considered a small gas pipeline from the northern foothills of the Brooks Range. But those efforts faltered, as did repeated attempts in the decades ahead.
When oil prices spiked over the last decade, the dependence on oil became a crippling financial blow to the economy. To escape the high price of heating oil, homeowners turned to wood stoves in large numbers, exacerbating the pollution problem during Fairbanks' frigid winters.
Fairbanks Natural Gas began operations in 1998, but it remains limited to about 1,100 mostly commercial customers, mainly because of supply, storage and cost issues.
AIDEA expects that the current customers of Fairbanks Natural Gas, the utility owned by Pentex, will see an immediate 13 percent drop in rates. Consolidating Fairbanks Natural Gas and the Interior Gas Utility, which is owned by the Fairbanks North Star Borough, could save about $1.8 million a year in operating costs, the due diligence review said.