By Matt Buxton, email@example.com
JUNEAU — Utility bills for the 1,000 or so customers of Fairbanks Natural Gas would drop if the state’s purchase of the utility goes through, according to a fact sheet by the Alaska Industrial Development and Export Authority.
The information was released a week after the agency announced it had signed a letter of intent to buy the utility, its parent company Pentex and all of the parents company’s assets for $52.2 million.
Just how much rates will drop from the existing $23.30 per thousand cubic feet of natural gas residential customers pay is unclear, said AIDEA spokesman Karsten Rodvik in an email this week. He said the state still is working out the details of the purchase, which is scheduled to be finalized later this month.
“If AIDEA acquires Pentex, we expect the price of natural gas should go down for existing customers,” he said. “We are working through our due diligence process, and part of that will be to determine the appropriate return on AIDEA’s investment while providing lower cost energy to consumers.”
Fairbanks Natural Gas gets its gas by truck from a Point MacKenzie processing plant owned by Pentex. The state’s proposed purchase would include everything from the Point MacKenzie plant to Fairbanks Natural Gas and all the pieces between.
According to filings with the Regulatory Commission of Alaska, Fairbanks Natural Gas earns a return of about 12 percent on rates, which amounts to about $2 million in profit per year, and pays income taxes that amount to nearly $1 million per year.
With those built into the costs, Fairbanks Natural Gas had been requesting a 6.92 percent increase to rates to cover its operating costs. That would have raised residential rates from $23.30 per thousand cubic feet of natural gas to nearly $25.
The state hopes to hit $15 per thousand cubic feet of natural gas to customers. At that price, gas would be roughly equivalent to a heating oil price of $2 per gallon.
A News-Miner estimate of rates based on the RCA documents and that drops income taxes and lowers the return to 3 percent, which is equivalent to the maximum interest rate AIDEA can collect on loans for the project, would have residential rates to about $22 per thousand cubic feet, a $1.3 dollar drop from existing rates.
Instead of a nearly 7 percent increase over existing residential rates, rates could drop instead by as much as 5.6 percent, according to the analysis, under state ownership.
The cost still falls well short of the state’s goal of $15.
Just how the state will meet that $15 mark while also expanding gas availability past the 1,000 existing customers is unclear.
Since the announcement of the deal, Gov. Bill Walker and other state officials have discussed lowering rates by utilizing the Alaska Railroad or even a small-diameter, low-cost plastic pipeline. The railroad this week applied to become the first rail shipper of gas in the country.
Alaska Railroad Corp. CEO Bill O’Leary in presentations this week didn’t give an exact figure of just how much it would cost to move gas by rail but said rail is “much more efficient” than moving it large quantities by truck.
The state had explored bringing more gas to Fairbanks through a public-private partnership to build a gas processing facility on the North Slope, but that project fell apart as its price for gas neared $20 to customers.
At least two private companies, one of which has a contract to buy Pentex’s gas processing facility in Point MacKenzie, had discussed bringing gas to Fairbanks for $15 per thousand cubic feet.
That didn’t include the gas distribution cost, which is in the range of $4 to $6, but would allow state funds to focus on bringing the cost of distribution down.
Lawmakers initially bristled at the news of the proposed purchase of Fairbanks Natural Gas and Pentex, worrying about the impact on private-
sector suppliers. Those concerns have been allayed to a degree as additional information has emerged.
The fact sheet released this week states that the purpose of the purchase is to eventually have a single gas distributor for the Fairbanks area, ending the bitter feud between Fairbanks Natural Gas and the municipal Interior Gas Utility, and to allow AIDEA to focus its investment efforts on increasing the gas supply.
House Rules Committee Chairman Rep. Craig Johnson, R-Anchorage, said in a news conference Thursday that there’s “a lot less discomfort” about the plan this week than last.
“I think we’re at a much better place,” he said. “We should have started where we are, and that could have solved a lot of the problems we had.”
Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.