An Alaska Energy Outrage?  Read And Weep.

News Miner.  “…wanted to make sure the IGU is truly doing its due diligence in purchasing Pentex from AIDEA. She believes “the entire community is going to be on the hook” for the success of the Pentex purchase.”

By

Dave Harbour

Since the commentary below is from an anonymous Fairbanks citizen, we invite any reader with contrary or supplementary facts to add them below.  We print this unsolicited viewpoint in the interest of public dialogue and because his general understanding of issues — if not every detail — tracks with public reports of the Interior Energy Project (IEP) history.  The goal of our archives is accuracy and while it appears this citizen is motivated by community service, it is possible that others will have facts that improve on this commentary. 

We would also add that as a regulatory commissioner in 2007-8 your author dissented from a majority decision that resulted in Cook Inlet consumers paying, we estimate, many hundreds of millions of dollars more for natural gas than the record justified.    Here is our dissent of October 12, 2006 (followed by a final order dissent on January 10, 2007), which readers may find relevant to the anonymous commentary and the critical decisions facing the citizens not only of Fairbanks and South Central Alaska, but also all citizens.  This is because wise spending of public money is everyone’s business — especially when Alaska is undergoing a fiscal crisis. 

The proposed Alaska LNG project requires an 800 mile Arctic gas pipeline, that runs near Fairbanks.

Furthermore, South Central Alaska gas and electric (i.e. since South Central electricity is mostly generated from gas fed turbines) ratepayers might be outraged to realize that after the Cook Inlet gas shortages of ten years ago, the Walker administration supports subsidizing a government gas utility in Fairbanks.  This utility would stick its straw into South Central Alaska’s traditional, Cook Inlet gas reserves at the same time the governor proposes moving huge North Slope gas volumes by pipeline right by Fairbanks on its way to an LNG plant at Nikiski, Alaska.   

He claims the North Slope gas pipeline/LNG project is the “get well card” for Alaska’s economy.  Anchorage and Fairbanks citizens might wonder why the enormous Arctic gas pipeline volumes are not also a “get well card” for an expanded Fairbanks gas utility — and for Interior Alaska mining projects as well.  -dh

Unsolicited commentary from an anonymous Fairbanks citizen

(We added links and edits for reader convenience.  -dh)

There are times to look a gift horse in the mouth.

I recently listened to a very informative presentation by the Interior Gas Utility (IGU). If you haven’t heard it, it is on the web from the Fairbanks Economic Development Corporation (FEDC).

This has got to be one of the more interesting projects our State has ever waded into. It started when Governor Parnell introduced a bill to provide a few hundred million $ of State money to build a state sponsored natural gas company in Fairbanks.

The thought being that a State owned gas company would lower the homeowners gas cost from the existing gas company that was selling gas for the highest price in the nation, $23/MMbtu and the other homeowners on oil that was about $26/MMbtu.

Governor Parnell lost his re-election bid when the candidate that he defeated in the primary beat him in the general. Only in Alaska!

Our new Governor told the Fairbanks folks to standby, he had a solution.  His solution was not an original idea for him. He and his new Chief of Staff had together previously tried to buy FNG when the Chief of Staff was the head of another group trying to build the pipeline and the new Governor was his lawyer. Together they drove the State to buy the local gas company for an astounding $53 Million.

The company had recently lost its bid at the RCA to expand its service area and worse, the RCA gave the service area to another new company owned by the FNSB. The prospects for FNG were looking pretty dim since it lost its growth potential and the people of the Borough elected to start their own gas company. The purchase of the company has to be one of the most opaque transactions ever. Some folks wondered why the State’s attorney General didn’t investigate the purchase, but once they realized the Attorney General was the Governor’s law partner, well, what’s the point.

Once the Governor had purchased the company he needed a place to put it.  The Alaska Industrial Development and Export Authority (AIDEA) was the answer.  AIDEA also had charge of the State’s allocation from the Parnell administration but that didn’t provide for the purchase of FNG. AIDEA didn’t want FNG at the inflated price but they were stuck with it. They needed to find a way to get rid of the hot potato.

This is where IGU comes in. Since AIDEA has the money that was ear-marked to help Fairbanks get cheap gas, they have flat told IGU that in order to get the money that they were allocated by Parnell and the legislature, they would have to buy FNG at the inflated price to get it off of AIDEA’s books without a loss.

It’s a shame that in order for Fairbanks to finally get its due, we have to accept such a huge liability.  There has been absolutely no accountability in this matter. Even after the State spent the $53 Million, the price of gas only came down a very small fraction. And when you divide the meager savings into the purchase price, it looks criminal. Now the wrong doers are trying to blend in their mistake into a larger package to dilute their damage.

If the above history isn’t enough to turn your stomach, hang on, it gets worse. AIDEA, in an effort to do what the original Parnell proposal said to do (build an LNG plant in Prudhoe Bay) set about trying to select a company to do this. They took forever and all they managed to do was waste a lot of money and alienate the folks at Golden Valley Electric Association (GVEA) who really are the best representatives of Fairbanks when it comes to energy matters. Of course there are some open wounds there if you have been around long enough to remember the Healy Clean Coal project.

But before things settled down, the new defeated but elected Governor pushed an amendment to the original deal through the legislature. Instead of directing the gas supply to come from the infinite supply in Prudhoe Bay, in a nod to the Cook Inlet producers, he “opened it up” for other options in addition to the North Slope.

All AIDEA needed to do next was to get a cheap gas supply from the Cook Inlet. The cheap gas supply is right next to the unicorn.

After 2 years of AIDEA’s folks trying to get the magical cheap supply they have apparently secured gas for $7.72/MMBtu to supply the LNG plant they want FNG to build next the existing plant.

In order for the Cook Inlet supply to be competitive with the North Slope gas, it needed to be closer to $3, not $8. Interestingly, $7.72 is the highest price gas in North America and is as high as it can be according to a consent decree the producer Hilcorp entered into with the State when they bought the field.

What was really surprising in IGU’s presentation last week is that in spite of AIDEA’s failure to get the cheap gas supply, they are proceeding to build the plant at Cook Inlet. This is the “King has no clothes” moment for Alaska. As I understand it, no one, nowhere, has ever built an LNG plant supplied by $8 gas. And the contract is only for 3 years. Nobody builds a plant with only a 3 year supply.

Someone needs to do a better job of explaining why they think it’s a good idea to build an LNG plant next to the most expensive gas in the world. It’s obvious that Hilcorp will benefit greatly for the deal. Gas that they can’t sell into Anchorage, they will sell for a higher price to Fairbanks. But get this, when you read the contract with Hilcorp that is posted on AIDEA’s website, Anchorage has first call on the gas, so Fairbanks is on the wrong end of the straw again.

The slides in the presentation showed a budget price of $43 Million for the new LNG plant to be built next to the old one in Pt. McKenzie, that is supplied with the $8 gas (more than $8 when transportation is included). If history comes anywhere near repeating itself, the plant will cost more than $43 Million.  Also it appears that the AIDEA/FNG team will build it themselves. So now we have the government built-in efficiency to factor into the price, because they can do it cheaper…. Let’s round it off to $50 Million.

So according to the IGU presenter, the result from accepting the deal from AIDEA for the cheap money, but the expensive FNG price, also has to come with an LNG plant built in the wrong spot because the Governor want to patronize the Cook Inlet producers at Anchorage’s and Fairbanks’ expense. If no one stops this nonsense the folks in Fairbanks will be the proud owners of the biggest polished turd in the state.

As Fairbanksans, we can’t afford this deal. Don’t take the cheap money with the higher priced add-ons and let’s surely have nothing to do with building a plant in the wrong spot. But make no mistake about it, we didn’t get the benefits intended from the State’s funds that we should have. The former owners of FNG got a lot of benefit and the Cook Inlet producers are about to get a lot of benefit next. And a lot of employees at AIDEA have extended their job by dragging things out.

There is a distinct lack of leadership in Fairbanks. It’s time for our elected leaders to step up and put a stop to this runaway train. Everyone should call the IGU board and tell them to reject the FNG purchase and tell AIDEA to give them the money the legislature approved and let IGU build the plant wherever the cheapest gas supply is. Be patient and buy FNG later, like we GVEA did with Healy Clean Coal project.

And whatever we do, we need to think real hard next time we are in the voting booth.

Propaganda

Propaganda: Information, especially of a biased or misleading nature, used to promote a political cause or point of view.

Courtesy: Pintrest

Friday we address the theme that, “What matters is what something is, not what it is called.”

The Prince, Romeo & Juliet

We have played the “Prince” in Romeo and Juliet and continue to appreciate the wisdom of the Bard who, to so many of us, is also a mentor.  For as he truly observed, “…a rose by any other name would smell as sweet.”  Or, in other cases, as sour.

The purpose of introducing that theme now, is to transition into the meaning it may have for us today.  Our views will not be “politically correct”, but we always invite readers to offer additions or corrections — even to our editorials.  We want our millions of pages of northern energy archives to provide future readers with the truest documentation of what has been and your counsel is always wanted.

Tune in Friday!  -dh