Interior Gas Utility considers taking over Interior Energy Project

The Fairbanks North Star Borough’s Interior Gas Utility has a big decision to make. The voter former IGU is considering taking control of the state backed Interior Energy Project. Its aimed at increasing the supply of natural gas in the Fairbanks area, and the Alaska Industrial Development and Export Authority has shepherded the effort to a point where it’s ready for transfer to the local non-profit utility. The IGU is weighing risks and benefits as it looks at taking on the project.

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Originally envisioned to provide a low cost natural gas as an alternative to wood and oil, the Interior Energy Project is falling a little short. That was the message from Interior Gas Utility general manager Jomo Stewart at a recent Fairbanks Economic Development Corporation hosted meeting.

”This project is simply not going to look, at least not coming out of the chute, the way we wanted it to look,” Stewart said.

The primary issue is the projected price of natural gas to customers along a limited distribution network in the core areas of Fairbanks and North Pole. The project targeted a price equivalent to heating oil, or $15 dollars thousand cubic feet, but Stewart shared a current projection of $20.20.

Stewart said there’s potential for the price to drop if more than expected property owners convert their heating systems to burn natural gas. The price could also go down if the project secures a better Cook Inlet gas supply deal, after the current contract expires in three years.

”We have that back-end option, or opportunity, to try to find that more favorably priced gas,” Stewart said.

The price tag for the Interior Energy Project is $346 million. That includes Cook Inlet gas processing, Fairbanks area LNG storage and distribution facilities, as well as the gas transportation and distribution systems owned by Fairbanks Natural Gas, a private company purchased by the state’s Alaska Industrial Development and Export Authority to forward the project. Stewart said Fairbanks Natural Gas checks out financially.

“The corporation, its personnel, its assets and operating systems, is solvent and sound, and adequate to provide a foundation for utility system growth and expansion,” Stewart said.

The cost of FNG is 60 million dollars, a price critics contend is as too high, but under the deal with state, the non-profit IGU would benefit from very favorable financing, including bonding and super low interest loans.

”So no interest payments, no principle payments, no interest accruing for the first 15 years,” Stewart said. “With a 35-year payback period thereafter, .25% interest. As I’ve described it, it’s the sweetest student loan you ever heard of.”

Stewart also describes the terms as necessary to finance a high risk project, hinged on hope that people will convert to natural gas. That was a slam dunk proposition ten years ago when oil prices were high and the project was first envisioned, but less so now, leaving the possibility of fewer than expected customers. Stewart said even in the worst case, the project should remain viable.

”To continue to operate, to provide service and even meet its debt service,” Stewart said.

The Interior Energy Project goal has always been providing lower cost, cleaner energy to as  many people as possible. That’s key to reducing pollution from wood heating.  Local air quality advocate Patrice Lee, who attended the FEDCO meeting, said the current Interior Energy Project plan is a tough call given local air quality and economic constraints, and citizens should not feel pressured to accept it as is.

”The original goals of the Interior Energy Project, I think, are still good goals,” Lee said. “They can be met. We just need to think outside the box perhaps and use our resources very wisely.”

Lee will have some say in what happens in the future, as a newly elected member of the IGU board. FEDCO CEO Jim Dodson, stresses that even though the Interior Energy Project has fallen short of initial targets, it has potential, noting the possibility of federal subsidies to help customers convert to gas, but only if the community commits to the project.

”That will allow people to step forward and say ‘Let’s find ways to make this work,'” Dodson said. “It is up to us to make this happen if we want to.”

Draft contracts to take over the Interior Energy project from the state are being reviewed by the IGU board. The utility’s Stewart emphasizes that the public will have opportunities to learn about, and comment on any deal this fall, before the board votes.