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Pentex proposes gas rate reduction Fairbanks residents would benefit from lower cost of business following AIDEA acquisition of natural gas supply chain ALAN BAILEY Petroleum News
Following the Alaska Industrial Development and Export Authority’s purchase of Pentex Alaska Natural Gas Co., Pentex is proposing reduced natural gas costs in 2016 for its Fairbanks customers, the AIDEA board heard during its Dec. 3 meeting.
Under the proposed rate structure, starting on Jan. 1 residential customers would see a rate cut of 13.5 percent to $20.20 per thousand cubic feet of gas. The small commercial customer rate would drop 12 percent, the large commercial customer rate by 11.3 percent and the interruptible small customer by 1.8 percent. The overall average rate reduction would be 10.4 percent.
AIDEA ownership of Pentex AIDEA completed its purchase of Pentex at the end of September, as part of the Interior Energy Project, a project to bring affordable energy to the city of Fairbanks and the surrounding Alaska Interior. The rate reduction comes about because, as a government owned entity, Pentex has lower business costs than when operating as a private entity. Pentex owns a small liquefied natural gas plant near Point MacKenzie, a trucking operation for shipping LNG from the plant to Fairbanks, and Fairbanks Natural Gas, the gas utility that distributes gas to customers in the central part of Fairbanks.
AIDEA sees its ownership of Pentex as a temporary arrangement. The idea is to use the agency’s ownership position as a means of facilitating operational efficiencies through the consolidation of the two Fairbanks gas utilities, Fairbanks Natural Gas and the Interior Gas Utility. The agency would then spin off the consolidated utility to the local control of some third party operator.
The proposed rate structure would result in a return on investment to AIDEA of about $900,000 from the Pentex acquisition, Britton said.
Mark Gardiner from the Western Financial Group told the AIDEA board that the objective is to transfer the Fairbanks utility to local control by June 30, 2016. Meanwhile, with government ownership of Fairbanks Natural Gas, the AIDEA board, rather than the Regulatory Commission of Alaska, becomes the rate setting regulatory authority for the utility. The proposal is to initiate a temporary rate setting process at the board’s Dec. 17 meeting, Gardiner explained. Then, with an interim rate in place, a full rate setting procedure, including an opportunity for public comment, would happen during the first quarter of 2016.
Oil price challenge Dan Britton, president of Fairbanks Natural Gas, told the board that a prime challenge in determining a 2016 budget for Pentex is the current low price of oil, with fuel oil prices undercutting those of natural gas in Fairbanks. In particular, the current price situation has resulted in a major drop in gas demand from Fairbanks Natural Gas’s two largest customers, the University of Alaska Fairbanks and Fairbanks Memorial Hospital, Britton said. Both of these customers are currently using oil rather than gas, he said.
Britton said that he understands that the current cost of fuel oil for the university is equivalent to a gas price of somewhere around $15 per thousand cubic feet.
An objective for the gas utility is to establish a gas rate that will return these large customers to the gas supply system, Britton said.
Other price factors Other factors impacting gas prices include a slight softening of demand as a consequence of warmer winter weather and an increase in 2016 in the cost of the gas supplied to Pentex by Hilcorp Alaska, under the terms of a Hilcorp gas supply agreement.
Britton also commented that the Point MacKenzie LNG plant is running somewhat under capacity, and that an ability to use the excess capacity would help reduce the impact of the fixed costs of the facility.
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