by Alex DeMarban, Alaska Dispatch News

The state attorney general has rejected an effort by a Hilcorp subsidiary to acquire an LNG facility at Point MacKenzie, saying the deal could harm utility customers in Fairbanks.

Harvest Alaska, owned by Hilcorp, had agreed in November to purchase the Titan liquefied natural gas facility along Cook Inlet and to manufacture and sell the gas to Fairbanks Natural Gas for 10 years. Both Titan and FNG are owned by Pentex Alaska Natural Gas.

Attorney General Craig Richards, however, rejected the deal on Monday after Harvest said it could not accept proposed changes, such as a pricing mechanism presented by Richards as part of an effort to lower gas prices for Fairbanks customers.

Fairbanks customers could be harmed if Harvest, “an unregulated entity with control over the critical liquefied natural gas supply needed for Fairbanks utility service, were to own the Titan facility,” Richards said in a letter Monday to Harvest Alaska president Sean Kolassa.

Kolassa had said the project’s profit margin was too small and the risks were too high to warrant changing key aspects of the deal made in November.

“Because of the substantial risks associated with finding and developing gas reserves, the operational costs of operating the plant and transporting LNG, and the slim margin already incorporated in the deal, we simply cannot accept the additional market risk,” Kolassa wrote in in a letter to Richards dated July 17.

The attorney general’s rejection comes after a state entity, the Alaska Industrial Development and Export Authority, decided in June to acquire Pentex in a $53 million deal to create an integrated gas distribution system designed to provide lower cost gas in the Interior. The deal is expected to close in October.

If Harvest Alaska’s acquisition of the LNG plant had been approved, AIDEA would have sold the plant to Harvest.

Now, if AIDEA closes the Pentex deal, the Titan LNG plant will “be an asset of Pentex under AIDEA ownership for a period of time,” said Karsten Rodvik, a spokeperson for AIDEA.

AIDEA expects its ownership of Pentex to be temporary, Rodvik said.

AIDEA’s plan has called for the state entity to temporarily hold the investment until a locally controlled utility can be created to run the system.

Rep. Mike Hawker, R-Anchorage, said he was very disappointed in the attorney general’s decision because it concentrates an LNG plant and delivery system in the hands of a state entity.

“We created AIDEA to help facilitate private sector solutions and this administration is turning AIDEA into a government monopoly in direct competition with the free marketplace,” Hawker said.

The Walker administration is stopping a properly executed free-market deal so it can “usurp” assets and subsidize Interior energy prices as the state faces a $3.5 billion budget deficit, Hawker said.

“This is bad because we are now putting AIDEA and the government into the direct business of managing the public utilities for the Interior of Alaska,” he said. ”We’re creating a long-term dependence on a new government subsidy at a time we can ill afford it.”

Fairbanks North Star Borough Mayor Luke Hopkins said Richards made the right call.

In a July 29 letter to Richards urging a rejection, Hopkins wrote: “(Fairbanks North Star Borough) believes the public interest would be best served by allowing the LNG plant to be publicly owned and operated by a public utility rather than a nonregulated private entity with monopoly market power.”

Hopkins said on Wednesday that Fairbanks customers are seeking a fair price for gas. Among other problems, the deal struck by Harvest and Pentex would have resulted in the same high gas costs Fairbanks already pays.

Richards’ decision is a step toward lower energy prices in Fairbanks, Hopkins said.

“I’m very satisfied. I wouldn’t say I’m happy. For this round, the Fairbanks ratepayers were properly served,” he said.