JUNEAU — With the aftermath of the North Slope gas processing plant in the rearview mirror, the state intends to buy Fairbanks Natural Gas.
In a news release issued this evening, the Alaska Industrial Development and Export Authority announced that with cooperation from Gov. Bill Walker it has signed a letter of intent to buy Pentex Alaska Natural Gas Company, LLC and its assets, which include the Fairbanks gas distribution company and a liquefaction plant in Point MacKenzie, for $52.5 million.
“It is important that we keep our eye on the immediate goal of bringing energy relief to Interior Alaska,” Walker said in a news release. “AIDEA’s initiative to help streamline gas distribution systems in the Interior is a positive development.”
Fairbanks Natural Gas has served about a thousand businesses and residences in the Interior and this summer began construction on new distribution lines. With its Point MacKenzie plant, the company already has been trucking gas in limited supplies to Fairbanks.
With the processing facility in Point MacKenzie the focus on finding a source of natural gas for the Interior turns to Cook Inlet, said AIDEA board member Gary Wilken, a former state senator from Fairbanks.
“The effort is to look at Cook Inlet and establish in some manner a long-term gas supply,” he said.
The deal between the state and Pentex is expected to close sometime this summer, he said.
The move comes after a private-public partnership between AIDEA and private project development company MWH fell apart at the end of the year amid rising prices and slipping timelines. The state had offered an extension, but MWH decided to bow out amid local opposition.
The purchase price of $52.5 million comes amid a state budget deficit of
$3.5 billion and finding that amount of money would likely be difficult in any session.
But lawmakers who attended a closed-door briefing with the governor said they were told it could be done with funds set aside in the legislation that created the Interior Energy Project in 2013.
That legislation, which passed with the unanimous support of the Alaska Legislature, put about $330 million of loans, credits and cash grants ($57.5 million) toward the project. AIDEA spokesman Karsten Rodvik said between $42 million to $45 million of the cash grants remain depending on finalized invoices for the work on the North Slope. He added that some of the North Slope assets, such as a gravel pad, could be liquidated to add to the available cash. There are also $117 million in low-cost loans and $150 million in bonds remaining, he said.
“They seem to think the money is available,” said Rep. Steve Thompson, a Fairbanks Republican who co-chairs the House Finance Committee. “They just need some legislation to switch it from the North Slope back in the other direction.”
Thompson went on to say he was glad to see a new plan come together so quickly after the failure of the North Slope plant, but said there likely will be some concerns about pushing private companies out of the energy discussion.
Pentex had attempted to sell its Point MacKenzie processing plant to Hilcorp earlier this year, but the sale was put on hold by the attorney general and state regulators. Some local officials in Fairbanks also opposed the sale.
“It’s interesting that Hilcorp was going to be a private corporation wanting to buy it (the Point MacKenzie plant). The attorney general stepped in and now a state agency is going to buy it,” he said. “I think there will be some questions.”
The consolidation of the Interior’s energy distributors under public utilities and agencies was good news to other Interior lawmakers.
“Distribution of gas becomes a public purpose instead of a for-profit purpose,” said Fairbanks Democratic Rep. David Guttenberg. “For me it creates an amazing alignment of purpose.”
One of the biggest criticisms of MWH’s involvement revolved around the private investment the company brought into the project, about $80 million. Guttenberg and local officials were concerned the rate of return for that investment harmed the final price of gas for consumers.
Private investors and private profits have long been a concern when bringing gas to the Fairbanks area. In 2012, the local governments gathered together to form the Interior Gas Utility, a municipal utility with the goal of serving the city of North Pole and other medium-density areas of the Fairbanks North Star Borough. The move was a direct snub to the privately held Fairbanks Natural Gas, which some lawmakers said had not done enough to expand gas distribution while collecting profits.
The Interior Gas Utility and Fairbanks Natural Gas traded blows in front of the Regulatory Commission of Alaska as the two fought for the exclusive right to distribute gas outside the city of Fairbanks. The proceedings, which included vicious attacks over each group’s ultimate motive, ended with the Interior Gas Utility’s victory.
Whether or not the Interior Gas Utility and Fairbanks Natural Gas merge is unclear, but Wilken said buying the private utility and its existing gas trucking operation puts the project on much better footing than before.
“We had a fragmented market before and the fact that we are a very small market a long ways from anywhere made the project that much more tough, but now we have a much more compact project,” he said. “What we have now is a supply coming from a different direction and we don’t have as many unknowns. We can put a pretty definite cost on it.”
Lawmakers who spoke with the governor said Walker was intent on achieving the original goal of bringing gas to consumers at a burner-tip price of $15 per thousand cubic feet of natural gas, an equivalent to a $2 gallon of heating oil.
On the campaign trail and after his election, Walker had been wary about the financial reality of trucking gas from the North Slope, but purchasing Fairbanks Natural Gas is something the governor is familiar with.
The Alaska Gasline Port Authority, a group created by the Fairbanks North Star Borough and other municipalities and one Walker had been affiliated with, had explored purchasing Fairbanks Natural Gas in 2010. One version of that plan included the group taking out some $250 million in loans to buy Fairbanks Natural Gas, build a North Slope plant and begin trucking gas down the Dalton Highway.
Because of that experience, Walker maintained that he thought the North Slope route didn’t pencil out for Fairbanks. After issuing an order directing the state agencies to begin looking south, Walker told the News-Miner that early numbers on Cook Inlet were “pretty encouraging.”
Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.