Alaska Electric Light and Power Company, commonly known to Southeast Alaskans as AEL&P, may soon have to squeeze a “G” into the acronym representing its name. After years of research and planning, the company is gaining ground in its goal to bring natural gas to Juneau.
Representatives from Avista Corp. — an energy company based out of Spokane, Washington, which acquired AEL&P in 2014 — met with Juneau’s delegates in the Alaska Legislature this week in an attempt to secure legislative support for the project. During the past couple of months, officials from Avista have successfully won the support of the City and Borough of Juneau, the Juneau Chamber of Commerce and other groups. Their most recent sales pitch, however, is the most important to date if the company is to move forward with the $130 million project to bring natural gas to Juneau homes.
“We think this is good for the community, good for the region, and one way we can help do this is with low-interest debt financing,” Avista’s Vice President Don Kopczynski told the Chamber of Commerce earlier this month.
The company is seeking that low-interest financing in the form of a $58 million loan from the Alaska Industrial and Export Authority. The remaining $72 million would come as an “equity investment” from Avista. AIDEA, a state-owned public corporation, essentially works as a bank to “provide various means of financing to promote economic growth and diversity,” according to its website. But before AIDEA will grant any money two conditions must be met.
As is typically the case when seeking a loan, the aspiring loanee must prove that its plan is economically viable. In this regard AIDEA is similar to most loaning agencies. Where it differs, however, is that in order to grant a loan, regardless of a project’s economic viability, AIDEA has to have Legislature authority; hence Avista’s recent meeting with Sen. Dennis Egan, D-Juneau and Reps. Cathy Muñoz, R-Juneau, and Sam Kito, D-Juneau. And it seems the meeting paid off. All three delegates said they will support Avista’s loan request in the Legislature (though Muñoz’s support seemed more tentative than her peers).
“It’s not encumbering the state because they’re paying back the loan, and they’re a big company, so I think it’s a pretty safe bet,” Egan said. “They’ve done a lot of work on this; they’re not just whistling Dixie.”
Egan said he will go to bat for Avista’s loan request in part because it’s similar to the Interior Energy Project — a $54 million AIDEA investment in natural gas utilities in Fairbanks that passed last year. He also said he supports the project because it will help Juneau residents and business owners “save a hell of a lot on their energy bills.”
According to Avista’s estimates, Egan is right. The company claims that Juneauites heating their homes with heating oil stand to save about 31 percent annually by switching to natural gas. By Avista’s numbers, those who use propane or electricity to heat their homes can expect to save about 45 and 38 percent, respectively, each year. A lot still stands between the residents of Juneau and these potential savings, however.
The road ahead (and what may run under it)
Earlier this month, Kopczynski, AEL&P President Tim McLeod and Avista spokesperson Jessie Wuerst sat down with the Empire to talk about the companies’ plan to bring LNG to the CBJ. According to Kopczynski and McLeod, who are spearheading the change, the project dates back to the day Avista bought AEL&P, if not before
“Since the first day we shook hands, we’ve been looking into this,” Kopczynski said. Though the plan has been in the works for at least a year and a half now, it will still be a while longer before Juneau residents can expect to purchase natural gas from AEL&P.
If everything goes according to plan, 78 percent of Juneau residents and businesses will convert to natural gas, but it will be 10 years before Avista and AEL&P hit that conversion rate. Establishing a new international supply chain and building out a network of gaslines takes time, after all.
In order to get the gas to Juneau, Avista and AEL&P will purchase natural gas from Vancouver, British Columbia, where it will be liquefied for easier storage. They will then truck it to Seattle and ship it to Juneau via Alaska Marine Lines, Kopczynski said. Here, it will be converted back to gas form at a yet-to-be-constructed regasification plant in Sheep Creek and piped to customers throughout the city.
The companies will also have to run gas lines under the city’s roads in public rights of way to every home and business that they will supply, a feat that the city’s Engineering Director Rorie Watt said will be the most extensive infrastructure build-out by a private entity in “modern times.” The closest analogy, he said, is when cable TV lines were installed in the public rights of way under the roads.
“We haven’t seen anything that aggressive in our rights of way because everything else has grown with the community,” Watt said.
Avista and AEL&P will look first to hit the biggest population centers, such as downtown and the valley, and it will begin to expand out to less populated areas from there. This expansion will continue throughout the decade-long life of the project. In short, some customers will have access to natural gas before others.
“It could take a couple of years to reach someone out the road,” Wuerst explained in a later interview. “People are just going to have to understand that this doesn’t just happen in six months.”
And for some Juneauites, natural gas will never be available, Kopczynski and McLeod said. It’s all about what makes sense economically, and for some places — McLeod used the Methodist Camp as an extreme example — it will never pencil out.
“When you go way out into the boonies, it just isn’t cost effective to lay pipe out to them,” Wuerst said.
To convert or not to convert?
If Avista and AEL&P are able to introduce the new utility to Juneau, Kopczynski and McLeod won’t be the only ones faced with making cost-conscious decisions. Juneau residents will have to decide whether to convert their homes to natural gas, and this conversion isn’t cheap.
According to Avista’s estimates, the average cost of conversion runs about $6,000. This number is not exact, however. It will be hard to know how close it is to the actual cost most homeowners will have to pay until the utility is here and people start converting.
“That’s going to be one of the hardest things to answer at first,” Wuerst said.
The conversion cost is not the only number that is difficult to predict at this point. Avista’s predicted energy savings are based on recent price estimates, and the cost of commodities often varies from year to year. If oil prices climb and gas prices stay the same, then savings increase. If the reverse happens, savings decrease. The problem is that the prices of commodities aren’t easy to predict, a fact the heating oil companies in Juneau know all too well.
“Commodity prices are the most impossible things to predict,” said Ken Bobbie, chief marketing officer for Petro Marine services, one of Juneau’s four heating oil companies. “If you’re forecasting commodity prices three or four years in the future, that is pie in the sky.”
Phil Isaak, the lead driver for Ike’s Fuel and the son of Ike, shared Bobbie’s sentiment, adding that prices are even less predictable in Juneau because there are more factors that play into cost here. The cost of barging, he said, is one.
“Nobody knows what the cost of anything will be in 10 years when their project is finished,” Isaak said. “The thing with heating oil is it’s tried and true here in Juneau.”
In fact, the state currently finds itself in a nearly $4 billion budget deficit because the cost of oil plummeted from more than $110 per barrel less than two years ago to just over $50 per barrel now. And though such a steep drop has been tough on a state where 90 percent of revenue comes from oil, it has lead to cost savings for those heating their homes with oil.
Kopczynski recognizes that prices fluctuate, but he said that natural gas is still more stable than heating oil.
“You’re already used to spikes, so it’s not going to be worse than what you’ve seen,” he said. “In fact, in many ways, I think it’s going to be better.”
Assuming, however, that Avista’s conversion cost is accurate — and assuming its energy-saving estimates are, too — it would take the average Juneauite who currently heats his or her home with oil about seven years to recoup the cost of conversion through savings alone. It would take about five years for a resident who uses electric-baseboard heating to recoup the conversion cost and about four years for somebody who uses propane. The fact that most people in Juneau use multiple heat sources makes this even more difficult to predict.
Avista’s projected energy savings are also subject to change, according to Kopczynski. Though Egan suspects that Avista will get the AIDEA loan it’s seeking, Kopczynski said that the projected savings are based on the company receiving this low-interest loan. He said that if the company has to go to a different lending agency with higher interest rates, it will to keep the project moving forward. But if this is the case, Avista and AEL&P will pass the cost to customers to meet the same bottom line.
“If it doesn’t work out we’ll go to Plan B, and that puts the cutomer in a tougher spot,” Kopczynski said. “Now, rather than saving 30 percent, the customers are saving 20 percent,” he added as an example.
Still, Kopczynski is confident that AEL&P will hit its desired 78 percent conversion rate by the end of the 10-year project if Avista and AEL&P move forward as planned. He said that the companies will only invest “at the speed at which people make the conversions.” But he did mention that if anything makes the switch more difficult for customers, such as high conversion costs, it may sour the deal.
“Anything that makes it harder for the customer will lose you the sale,” he said.
Currently, neither Avista nor AEL&P plan to offer any help with the conversion cost. Kopczynski and McLeod did mention that those who convert may be eligible for the state’s home energy rebate, a rebate program offered through the Alaska Housing Finance Corporation that grants up to $10,000 for home improvements that increase energy efficiency. But this is a one-time deal. Homeowners who have already taken advantage of it on their current homes can’t use it again.
New kids on the block
Representatives from Avista and AEL&P have pitched their plan to bring natural gas to Juneau as a viable source of competition that will help reduce the cost of energy in Juneau. Both Egan and Kito said that this is one of the reasons they will support the companies’ request for an AIDEA loan. However, there are already a myriad of heating options available to Juneauites, and natural gas is not the only heat source attempting to break into the market. A small but quickly growing contingent of the population is converting to air-source heat pumps.
These heat pumps are powered by electricity but are nearly twice as efficient as baseboard heaters, according to the Juneau Commission on Sustainability’s space-heating calculator.
John Howard owns Northern Refrigeration with his wife and business partner, Kimberlee. Their business is primarily a commercial refrigeration company, but they’ve been installing heat pumps since they opened two and a half years ago, and sales are picking up, they said. They’ve sold and installed a total of 60 heat pumps since they opened their business, but nearly half of those were sold in the past six weeks. And they said most of their advertising has been through word of mouth.
“I didn’t think this would be a big part of our business, but it definitely is becoming that,” Kimberlee Howard said.
The Howards aren’t the only business in town that installs these heat pumps, and they say that they are growing as a heat source in both the residential and commercial industries. Foodland IGA, for instance, is heated using air-source heat pumps. This was not a Northern Refrigeration project, however.
“I read that natural gas can save customers 31 percent; our heat pumps can save 35 to 60 percent, and the technology keeps improving,” Kimberlee Howard said. “Our customers don’t have to wait around for the natural gas train. They have been saving money and energy for weeks, months, years now.”
Like natural gas, however, these heat pumps carry a fairly steep conversion cost. According to the Howards, these pumps cost about $4,000 to $5,000 to install, but they can be a lot more expensive depending on the size of the space that needs to be heated.
Still, heating oil holds the top spot in the heating utilities market, and both Bobbie and Isaak say they will continue operating as they normally do regardless of any other companies’ plans.
“The market will do what the market does,” Bobbie said. “We’re not going to assume the sky is going to fall. We’re going to go about our business and supply our customers as usual.”
• Contact reporter Sam DeGrave at 523-2279 or at firstname.lastname@example.org.