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Interior lawmakers ask about gas options Ramras and Coghill want to know how consumers will be protected if a bullet line is built after a trucking operation begins Eric Lidji For Petroleum News
Fairbanks-area lawmakers want to know how state regulators would protect consumers if two separate efforts to bring northern gas to the Interior materialize in the near future.
If an in-state gas pipeline should come online after a proposal to truck liquefied natural gas to Fairbanks become operational, Fairbanks natural gas customers might be stuck paying down the debt on an obsolete project, Sen. John Coghill and Rep. Jay Ramras wrote in an April 12 letter to Regulatory Commission of Alaska Chairman Bob Pickett.
Coghill and Ramras also want to know what existing regulations have to say about a local market where consumers suddenly have more than one option for getting natural gas.
Contemplating a $250 million proposal by the Alaska Gasline Port Authority to truck North Slope LNG to Fairbanks, the two lawmakers wrote, “Our overarching concern is whether a 20-year amortization on a project that may take three years to complete can compete with a small diameter natural gas pipeline that may be completed in five to seven years.”
The trucking proposal requires building new liquefaction and re-gasification facilities on the North Slope and in the Interior. Coghill and Ramras believe this infrastructure “will be burdensomely complex and expensive” compared to a 24-inch pipeline and would in turn make the local distribution grid more expensive for current and future customers.
“If an alternative source of natural gas becomes available, consumers must be entitled to migrate to the most affordable delivery system for gas available without carrying the burden of cost for an antiquated system,” the two lawmakers wrote.
Gov. Sean Parnell recently signed a bill that reorganizes state efforts to have a plan in place by July 2011 for bringing gas to Fairbanks and Cook Inlet by the end of 2015.
Two plans for natural gas Fairbanks homes and business mostly use heating oil and the local electric utility, Golden Valley Electric Association, primarily generates its power from coal and diesel.
When crude oil prices rose in 2008, policymakers in the Interior began searching for a way to break the region’s reliance on crude oil products for heat and electricity.
There are two efforts currently under way to bring more natural gas to Fairbanks.
The first effort involves trucking liquefied natural gas from the North Slope to Fairbanks.
The Alaska Gasline Port Authority recently took two major steps toward this goal, making a bid to buy privately held Fairbanks Natural Gas, which serves more than 1,100 customers in the region, and signing a 15-year LNG supply contract with GVEA.
If the deal goes through, the project could be operational by 2012.
The second effort is a much-discussed pipeline from the North Slope to Anchorage.
Although no plans have been sanctioned yet, several public and private proposals would bring northern gas into Southcentral on a line through Fairbanks to replace diminishing production in Cook Inlet. The most optimistic timelines have gas flowing by 2015.
The cost comparisons proposed by Ramras and Coghill are not so simple, though, especially because the in-state pipeline, or “bullet” line, is still just a proposal.
Because it’s unclear whether the pipeline, if built, would be public, private or both, it’s impossible to say what the profit motive would be. The port authority project would likely be priced to recover costs. Would a pipeline with tariffs that guarantee a specific rate of return for its owner, on top of maintenance and operations costs, still be cheaper?
Also, having two options for getting gas to Fairbanks doesn’t necessarily mean two companies would be competing in the market. Fairbanks Natural Gas could simply buy gas supplies from both sources and charge customers a weighted average of the two.
What if both plans go ahead? In addition to wondering about an obsolete trucking operation, Ramras and Coghill also wondered how the regulatory structure would work if Fairbanks has two gas sources.
Presumably imagining a scenario where an in state pipeline led to the creation of a new gas company, Coghill and Ramras asked how the RCA would handle competition. For example, could a company get a certificate to provide natural gas deliveries in a part of the state where another company is already certificated to provide the same service?
And if the RCA did grant overlapping certificates, would the existing distribution grid suddenly become common carrier, where the owner must make space available to third-party suppliers, or would the new company need to build its own distribution grid?
There is a model in Alaska for two companies using one grid. In Southcentral, Aurora Power Resources markets natural gas on the existing Enstar Natural Gas network.
The lawmakers also want to know if the purchase of Fairbanks Natural Gas by a public, not-for-profit entity would change the status of the utility in the eyes of the RCA.
The RCA opened a legislative docket upon receiving the letter. The docket does not include a timeline for response. Before going into effect, the GVEA contract to buy LNG from the port authority must get RCA approval. The RCA would also have to approve any transfer of the Fairbanks Natural Gas certificate to operate in the Fairbanks area.
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