Southern Kenai ready for round 3

After two budget cycles without state support for a gas pipeline, Homer and Kachemak hope the third time will be a charm

Eric Lidji

For Petroleum News

With the legislative session just a few weeks away, the southern Kenai Peninsula is gearing up for its third pitch in as many years for state support for a natural gas transmission line.

The Alaska Legislature approved a $4.8 million line item to build a gas pipeline to Homer in early 2010, but placed four conditions on the grant. Those included: requiring that gas from a pipeline to Homer be priced equal to gas in other parts of the Cook Inlet basin; that a Homer pipeline not harm other customers across the region; that state funding for the pipeline help offset rates throughout the region; and that the city of Homer plan a distribution system to bring as many locals as possible onto the grid.

Gov. Sean Parnell vetoed all but $525,000, saying the rest could come in a future funding cycle once the communities addressed the concerns. He didn’t include the project in his fiscal year 2012 budget, though, and vetoed a $10 million appropriation approved by the Legislature that year. The project is not in his fiscal year 2013 capital budget, either.

Homer believed it satisfied the legislative concerns years ago. It pointed to the postage-stamp rates required in the Enstar Natural Gas Co. service area, and to recent municipal moves to fund distribution systems in Homer and the smaller city of Kachemak to the east.

The communities ultimately used the reduced funding to build a pressure reduction station outside Anchor Point and a short pipeline, less than a mile, down the Sterling Highway. That allows some institutions, such as Chapman Elementary School, to begin converting to natural gas, and sets the stage to quickly continue the line to the south.

The region has been trying to get natural gas for decades, but those efforts became more realistic once Armstrong Cook Inlet developed the North Fork field just to the north.

But the nearly 6,000 people living in Homer and Kachemak cannot get natural gas without a transmission line extending down from the current terminus in Anchor Point.

The communities currently use diesel fuel for home heating, and want the price advantage of natural gas, but shouldering the entire cost of the pipeline would negate that advantage, according to Rep. Paul Seaton, R-Homer, the longtime legislator for the region.

The project needs about $10 million, he said, although the exact amount the region will request from the state won’t become available until the budget negotiations begin in earnest. A failed attempt to bring gas to the southern Kenai in 2003 left a $1 per thousand cubic foot “Homer Extension Surcharge” on the books as a way to help pay for a transmission line, shifting some of the cost of the project back to the ratepayers.

“This was a tariff that we didn’t even know was there,” Seaton said.

The local communities are ready to fund distribution systems, Seaton said. Kachemak approved an increase to its mill rate to fund a grid covering the entire town, while Homer approved an improvement district to fund the first phase of a distribution build out.

Seaton points to provisions in the statewide energy policy passed in early 2010, specifically those guiding the state to support natural gas transportation projects and help develop “the most cost-effective, long-term sources of energy for each community.” He also notes the efforts to bring natural gas to Fairbanks, the largest population center in Alaska still tied to fuel oil, saying, “Our fuel prices are higher than Fairbanks.”