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Fairbanks

State agency to purchase Fairbanks natural gas utility

  • Author: Dermot Cole
  • Updated: September 28, 2016
  • Published January 28, 2015

JUNEAU -- In a step that could reshape the Fairbanks energy picture, a state agency has signed a letter of intent to purchase the small natural gas utility system there for $52.5 million, fueled by natural gas supplies that would be trucked or shipped by rail to the Interior city.

The Alaska Industrial Development and Export Authority announced the proposed deal Wednesday and said it would start due diligence on the plan to purchase the privately held company that owns Fairbanks Natural Gas.

Gov. Bill Walker briefed Fairbanks legislators in the state Capitol at 5 p.m. Fairbanks Rep. Steve Thompson, co-chairman of the House Finance Committee, said their reaction was uniformly positive.

They discussed how a legislative appropriation for the Interior Energy Project might be reshaped to help finance the sale.

Thompson, along with Sen. John Coghill and Reps. David Guttenberg and Scott Kawasaki said they didn't go into all of the details, but that the idea is to finish the deal by the fall and expand the current trucking operation, with the intent of using the state-owned Alaska Railroad as the ultimate means of transport.

"I hope it works," said Thompson. "This seems to be pretty well thought-out. I think they have some negotiations to do yet. There is still a glimmer of hope for Fairbanks."

Coghill said the governor outlined a plan under which natural gas could be shipped in containers on the Alaska Railroad. Coghill said it's critical that any gas purchase arrangement be for the long term, for energy security.

In an interview after the meeting, Walker said the proposal will go a long way toward easing the energy problem in Fairbanks by diversifying the supply and speeding the transition to natural gas. Fairbanks Natural Gas has about 1,100 customers and supplies gas to Fairbanks via truck along the Parks Highway.

"The next step will be negotiating natural gas contracts. There are a number of companies that are interested in selling gas," said Walker. He said the idea of shipping gas from Cook Inlet to Fairbanks has been percolating for a long time, but it was when the AIDEA plan for a new North Slope gas treatment plant faltered because of high cost in December that the initiative really advanced.

"It is important that we keep our eye on the immediate goal of bringing energy relief to Interior Alaska," Walker said in a statement. "AIDEA's initiative to help streamline gas distribution systems in the Interior is a positive development."

The purchase by AIDEA, a state-owned corporation, would end the competition that exists in Fairbanks between Fairbanks Natural Gas, the private utility owned largely by investors in Minnesota, and a municipal utility that intends to serve areas outside the city center.

AIDEA Board Chairman Dana Pruhs released a statement saying the agency would "work closely with the community and utilities to reduce construction and operation costs for both natural gas distribution systems."

"This efficient approach will lead to lower cost energy for consumers," he said. FNG President Dan Britton was quoted as saying he looks forward to a "seamless transition."

Cory Borgeson, president of Golden Valley Electric Association, said he is eager to see the details on how the electric utility would be able to participate.

"GVEA is waiting to see what AIDEA will be proposing for a source of gas in light of the governor's promise not to put GVEA at risk by committing to a fuel arrangement," said Borgeson.

He said power rates for a typical household are going down by about $17 next month because of declining oil prices, which means that the price level at which natural gas has to be competitive has dropped.

In 2010, when Walker was the attorney for the Alaska Gasline Port Authority, formed by municipal governments in Fairbanks and Valdez, the agency considered buying FNG for $64 million, but the project did not advance, in part because of questions about the price.

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