The Alaska Industrial Development and Export Authority has signed a letter of intent to purchase Fairbanks Natural Gas parent company Pentex. AIDEA spokesman Karsten Rodvik says the state corporation would pay $52.5 million for Pentex company assets currently used to supply about a thousand Fairbanks area customers with Cook Inlet gas.
“The LNG plant at Point MacKenzie; it includes the trucking components, the storage components, the entire set of assets,” Rodvik said.
The deal also includes a distribution system in the core area of Fairbanks, a piping network FNG is already in the process of expanding. Pentex and FNG President Dan Britton says AIDEA’s access to low cost capital would help the company pay for infrastructure needed to meet new gas demand.
“Our current gas supply is maxed out, out of the Cook Inlet. In order to expand, it requires for additional liquefaction capacity in some form,” Britton said.
FNG isn’t the only Fairbanks area utility looking for more natural gas. Golden Valley Electric would wants to transition some generators from oil to gas, and the borough run Interior Gas Utility or IGU is laying distribution pipe to serve customers outside FNG’s downtown service area. AIDEA’s Rodvik says state ownership of the company will facilitate cooperation with the other entities.
“Promote an integrated gas distribution system that can be built and operated in a much more efficient manner for the benefit of Interior residents,” Rodvik said.
The deal opens up the potential of FNG and the IGU merging, but even if they don’t, IGU Board Chair Bob Shefchik says having both entities operating on a cost based, instead of profit based, business model, should be a plus to consumers.
“The idea that there’ll be a single postage stamp rate for all residential gas customers in the Interior is a likely outcome whether there’s a merger or not,” he said.
Shefchick calls the state plan bold and decisive, and believes the $52 million price is fair.
“And one could not replace what they have for that $52 million,” Shefchik said.
As evidence of the value Shefchick sites Hilcorp’s recent attempt to buy FNG’s gas processing plant, a deal blocked by the state. AIDEA’s Rodvik says the state corporation plans to pay for the Pentex purchase with money from a revolving fund.
AIDEA’s board of directors must approve the deal.
The Fairbanks Natural Gas acquisition will also come under scrutiny from the Legislature. Key Republicans, like Anchorage Representative Mike Hawker, are skeptical of the utility’s purchase.
“We have a long history of failed dreams when it comes to these equity investments by AIDEA,” he said.
Hawker says the deal is akin to the state investing in grain terminals and fish farms. He’s also critical of how the deal has been brokered, even likening it to “insider trading.” Pentex, the parent company of Fairbanks Natural Gas, was positioned to sell assets to Hilcorp, before the state intervened in December.
“I am very concerned about state government getting in the way of the private sector with regards to the Fairbanks utility purchase,” Hawker said.
Gov. Bill Walker has pushed back against the criticism. At a press conference on Friday, he called the letter of intent a “first step,” and said he was committed to a transparent process.
“We don’t believe we’re in any sort of overreach situation,” Walker said. “It’s time that somebody reaches out to Fairbanks, and that’s what we’re doing. So, any reaching we’re doing is reaching out to Interior Alaska energy consumers to bring some relief to them.”
While money for a Fairbanks energy project has been appropriated, there are conditions on the funding that could require statutory changes from the Legislature before the $52.5 million can be spent on the utility purchase.