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Criticisms / Q&A
This page last UPDATED: Mon. - Oct 1, 2012 8am
The non-partisan -- LOWELL GROUP "GAS-IN-2-YEARS" members -- will respond to all comments that we are receiving via this website. If we are unable to answer your question we will find an answer. We will post them with answers ASAP. We believe our informed citizens can make the right decision as to what is best for all of Interior Alaska. We are being emailed questions on a daily basis.
Q: Will my email address remain private?
A: Yes, your email address will remain private. We will never publish your name or email address.
If you prefer to see every Q&A just scroll down. If you prefer to see specific questions answered please click on individual blue linked questions below.
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Q2: It seems that FNG natural gas pricing mirrors fuel oil?
Q4: How fast can - GAS-IN-2-YEARS - plan get moving?
Q5: Can you quickly summarize the Lowell Group's "GAS-IN-2-YEARS" plan?
Q6: Will FNG ever become a regulated utility?
Q9: I have heard that FNG is for sale?
Q10: Who are possible buyers if FNG is sold?
Q25: Will Flint Hills and GVEA participate in this plan?
Q26: What is your opinion on the GVEA signing of the contract for BP's North Slope natural gas?
Q27: I live in Two Rivers. When will I get gas?
Q31: In areas not connected to the gas lines, can propane be delivered and used at -55?
Q37: Can propane trucks deliver propane at -40 below?
Q1: We have heard that the LOWELL GROUP is somehow associated / aligned with Fairbanks Natural Gas (FNG)?
A: The Lowell Group has nothing to do with FNG, other than studying the gas issue for over 4 years. After looking at all the other alternatives, balance sheets, who is the most viable to provide lower heating costs. This is who we have determined can bring the lowest price in the fastest time frame.
Q2: It seems that FNG natural gas pricing mirrors fuel oil?
A: FNG rate has averaged about 10% less than fuel oil since they began selling gas. Here are the FNG graphs as submitted to the Alaska Regulatory Commission regarding the prices they have charged: Their current rates are 20% less than fuel oil.
- Fairbanks Energy Price Comparison: Fairbanks Natural Gas vs. Fuel Oil Equivalent
- Fairbanks Natural Gas Discount / (Premium) to Residential Fuel Oil, March 1999 - July 2012
Q3: Since the Lowell Group's "GAS-IN-2-YEARS" plan aligns with FNG, how can I be assured that there will be true lower heating costs?
A: FNG's current Cook Inlet gas contract is much higher than what their North Slope contract is with Exxon. The State will own the conditioning plant on the North Slope. The State might only be willing to do this plan under certain PRICING DELIVERY GUARANTEES.
Q4: How fast can - GAS-IN-2-YEARS - plan get moving?
A: If the Governor and Legislature agree with our non-partisan gas plan and fund the North Slope facility, current LNG customers will see a 50% SAVINGS in their heating bill within 2 years.
Q5: Can you quickly summarize the Lowell Group's "GAS-IN-2-YEARS" plan?
A: The State will own the conditioning plant on the North Slope and lease it and have it managed by FNG who will deliver natural gas and propane via trucks to Fairbanks and the Yukon drop off point & distribute to their customers at no more than $15.00/mcf which equates to $1.98 diesel. That is a current saving of 50% guaranteed. If you use the data from the FNSB's distribution study they say the diesel price in 2015 will be $4.65/ gallon. Using their figures the customer will see a 57% savings with trucked LNG. The rural Bush communities will see saving of over 70% when using propane that will be delivered as part of Section 6, the Rural Propane Distribution Plan. Propane is a by-product of creating LNG. Propane will also be available immediately to Fairbanks customers not yet on the LNG distribution system. Please review the 8 section of the plan.
Q6: Will FNG ever become a regulated utility?
A: Yes, under our plan FNG becomes a regulated utility under the State of Alaska - Regulatory Commission of Alaska. http://rca.alaska.gov/RCAWeb/home.aspx That is the reason why we will have lower home heating costs in 2 years plus the lower cost of the gas being purchased from Exxon.
Q7: Will the State of Alaska treasury income be reduced if the State does not sell any royalty oil to the North Pole refineries?
A: No, because the State of Alaska would own the LNG processing facility on the North Slope and collect royalties to the treasury from a different location.
Q8: AIDEA sued GVEA for $160 million over the Healy Clean Coal Power plant issues; they don't like each other, and the animosity makes them working
together problematic. Do you envision them working together regarding this gas proposal?
A: AIDEA could sell directly to GVEA with FNG trucking their gas needs also. Alaska Industrial Development and Export Authority (AIDEA) is our proposed State entity to be the vehicle to work with FNG to ensure that State funds remain used for assets of the State. This is the best approach given the LNG plant can be used for the benefit of other rural Alaskan communities. Last year GVEA requested funds from the State for their portion of the Flint Hills GVEA project. This approach does not meaningfully benefit space heat customers, and it is believed GVEA will join forces with this idea given the substantial risk reduction and cost savings to GVEA rate payers.
Q9: I have heard that FNG is for sale?
A: FNG has publicly stated in our meetings that it is currently seeking Capital which may include an outright sale. FNG has indicated it would like support for a State investment in the LNG infrastructure on the North Slope with the State as owners of the LNG facility. And if Enstar or any other utility buys FNG while the State gets the conditioning LNG plant built. It does not change this plan one iota.
Q10: Who are possible buyers if FNG is sold?
A: We cannot speak for these companies but any of these individual or combinations perhaps might be suitors. Corix, (owns Fairbanks Sewer and
Water plus one-half of Doyon Utilities), Enstar or another regulated type gas utility company. We also cannot speak for Doyon or Usibelli both seem a natural fit since they both are in the energy drilling or btu business already.
Q11: A private company does not qualify for state or federal grant money. I believe that FNG will have to pay
taxes on the grants. What I am saying is that if FNG gets $100M in grants
they have to pay $40M in federal and state income taxes. Am I correct?
A: Taxes will be due if grants are received by a Private Entity; however these assets are then allowed to be depreciated for tax purposes, therefore reducing the overall burden of taxes. With AIDEA as the owner of the North Slope Liquefaction Facility these taxes are minimized.
Q12: Can GVEA, the city or the Borough receive grants from the State or federal
governments without any tax consequences?
A: Yes, without the creation of a new Municipal Utility government layer. As stated previously the overall impact of the taxes is reduced by the private entities ability to depreciate the asset for tax purposes.
Q13: I don't know if anyone other than the two signers of the North Slope gas contract between Exxon and FNG know this answer. But I heard that that gas contract has a linking mechanism which pegs gas to oil. Which means if the price of oil goes up, the
price of gas also goes up, regardless of what the global price of gas is
doing. Can you find an answer to that?
A: We had to ask both Exxon and FNG for that answer. FNG responded that the Gas Contract is Confidential, and as such has not been seen by others. They have assured us and supported through their models that the price of gas under this contract remains extremely beneficial to Fairbanks Consumers over a wide range of Oil Prices. In fact FNG believes the indexes used for the North Slope project have a greater level of certainty and stability than indexing to Henry Hub. Remember that in 2008 and years prior Henry Hub exceeded $10.00 MMBTU. Index chasing vs. predictability and stability with substantial saving to Oil is viewed as a more practical approach to the Fairbanks energy issues.
If any one else can get Exxon to respond that would be great. We will post their answer if they reply.
Q14: I support the utility transfer of both cities to the Borough. Then the municipal gas authority can solicit and receive grant moneys tax free. As a practical
matter I believe the Legislature would be more comfortable in giving money
to a public entity rather than a private one. The Borough utility could
then use the money to acquire the assets you outlined in your plan and lease
them (at cost) to FNG, GVEA or any other economically regulated utility. Your comments please?
A: The State we would say without a doubt would prefer to grant the money to a public entity is 100% valid. That is why we have selected AIDEA to be the recipient. They are established entities with resources and experience in similar projects. For example the Renewable Energy Grants program administered by AEA is a prime example of this concept.
The most important element of this issue is gas supply. The City already got rid of the Municipal Utilities System and they would need some real experts to run the Gas Utility if those powers are to be transferred to the Borough. Do they really want to forever transfer those powers?
Q15: Why doesn't Governor Parnell negotiate a deal
with the Producers to allow the State to take some of its royalty gas out of
the stream
that is re-injected? The price (well head less transportation) might be
tagged to Cook Inlet or, better yet, Henry Hub.
A: Great question some one needs to ask the Governor question and let us know so that we can post it here. But in the mean time the Lowell Group has reviewed detailed projections, provided by FNG and the supply contract as it exists does provide substantial reductions in energy costs. We agree that any alternative contracts to provide lower cost gas through state royalties would be beneficial; however we have not experienced any willingness form the State to do so. The GAS-IN-2-YEARS PLAN is a practical solution that has the necessary contracts, permits and benefits in place to achieve the goal of reduced energy costs in Fairbanks.
Q16: What about people like me who live in Delta Junction outside the FNSB can the Municipal Gas Authority lower my heat space needs? Can you provide gas or propane at the same cost outside the borough?
A: Our GAS-IN-2-YEARS plan does not need the extra cost layer of a Municipal Utility System. It would be the additional cost of the physical delivery by truck, labor and the fixed overhead costs of that delivery system.
The safety mechanism of pricing is found under State ownership of the LNG conditioning plant. The State should not finance this plan unless they have in writing some PRICING DELIVERY GUARANTEES BASED UPON THE FNG GAS CONTRACT WITH EXXON. Various delivery pricing scenarios based upon the price of gas now and a model of prices in the future. So the State will be the responsible guarantor of approximate future prices ranges based upon market conditions.
A: We don't have an answer on that either. Can anybody help us out here and find out so we can post it here?
Q18: Last I heard GVEA and Flint Hills were going it alone
with a North Slope LNG plant and trucking. What is the latest?
A: We have been informed during our weekly meetings by a Flint Hill spokes person that they all work for its two stock owners the Koch Brothers and no matter what their business model will charge "What the market will bare". So our group no longer supports GVEA negotiations with Flint Hills. Initially our plan backed GVEA working with Flint Hills. But we had to scrap that plan too. RE: Flint Hills - Here is our plan where is their plan? How do they plan on getting it done? What is their timeline? What is the cost for their buildout? Will their project benefit the consumer? If so how much? Show us your numbers. We laid our cards on the table here.
Recently GVEA has entered into a contract with BP. Ok, how does GVEA provide propane gas to the Yukon, Tanana & Kuskokwim river highway delivery systems? Does GVEA have any permits to build like FNG does? Is their finished project 5 years away?
Q19: Hey I live in Nome can you barge the propane down the Yukon to St. Michael and to us and Kotzebue? Can we vote for your plan?
A: We will get back to you on that question......
Q20: How do you expect this plan to pass in the Alaska State Legislature when Anchorage controls the votes?
A: Anchorage has the lowest energy prices in the nation. Fairbanks has the highest. We hope our interior delegation will get a clue and back a plan that is viable and is the only written plan to date which provides lower home heating space cost. We hope that Anchorage legislatures are sympathetic to our crises. We hope the Governor will listen.
Q21: Here is how I see it. What will the value of FNG be after a buildout? This plan is backing the Minnesota Hedge Fund that owns FNG and you guys plan on making them all filthy rich on our backs just like happened with our water & sewer utility. Right?
A: The value of FNG after full built-out will be determined by the level of equity FNG has invested in the Fairbanks community, Regulatory Stability, and community economics. The idea that the Lowell plan is lining the pockets of a Minnesota Hedge Fund is overreaching. Yes, the state involvement in an Increased supply of LNG at lower prices will provide an opportunity for FNG to expand its service, increase its customer count and revenue. However, the value of FNG resulting from this opportunity is determined, solely by the amount of private dollars invested by FNG. If the investment is not made the value of FNG does not change. The Regulatory Commission of Alaska only allows a Utility to earn a return on its direct investment in Utility Assets. The savings caused by the State investment are passed on directly to the consumer and not included in FNG's rate base.
You may argue that FNG will be worth more in the future because it has more customers and more revenue; however you must remember that if FNG is sold the entity purchasing FNG will only be able to include in future rate base the actual investment in the utility infrastructure made and that any premium paid above book value is not allowed in rate base and therefore does not affect the rates to customers. Given this scenario the potential value of FNG becomes more a function of other economic conditions and opportunities investors have to earn a return on their investments. If investors have strong opportunities to earn above regulated returns else where they will not be willing to value FNG much above its allowable rate base.
Q22: Aren't state regulated utilities allowed a guaranteed rate of return? Won't FNG make a guaranteed 12% rate of return?
A: We are all aware of failures of many private investors. An important clarification regarding utility earnings is that the utility has the "Opportunity to Earn the Allowed Rate of Return"; however is NOT guaranteed to earn that return. This is evident in the fact that many regulated utilities earn below their allowed rate of return as a result of changing economic conditions such as conservation, weather increased expenses, etc.
Q23: My mom is on oxygen and has a difficult time breathing during winter months. Does this plan improve our winter air quality?
A: Yes. This plan resolves all issues with the EPA. Please take the time to read the plan.
Q24: If you have propane tank barge distribution system on the Yukon and Tanana rivers can you have St. Michael as a swap point to bring propane to Bethel and surrounding communities?
A: We are doing some research on that.
Q25: Will Flint Hills and GVEA participate in this plan?
A: We know GVEA will get an immediate 25% reduction of electrical power production at their North Pole generators. We also know Flint Hills would switch to natural gas to run their refinery. Both of their savings will be dramatic. We do not need either of those anchor tenants to make this plan work. If and when they join our savings and cost of natural gas will be lower than any thing mentioned in our plan by an additional 25% savings minimum.
Q26: What is your opinion on the GVEA signing of the contract for BP's North Slope natural gas?
A: We are very pleased and wish them the best of luck and it does not affect this plan in anyway and we know that deal is long over due and should have been years ago.
Q27: I live in Two Rivers. When will I get gas?
A: You can have propane in two years. You can use it to heat your home after you switch to a gas furnace. That will be the only type of gas that can be available for rural residents.
Q28: Were you aware that FNG supplied this nearly identical plan to the Alaska State Governor a few years ago. Did FNG provide this plan to you?
A: NO. No one in our group was aware if that was the case. So we asked FNG if this was correct. Did FNG provide a plan to the Governor's office a few years ago that was nearly identical to this plan? FNG said YES. Well the LOWELL GROUP was not aware that this occurred nor did any one at FNG ever provide to any member of our group this plan that we came up with independently. Nor did anyone from the Governors office nor any legislator ever say anything about this plan that can LOWER OUR HOME HEATING SPACE EXPENSES IN 2 YEARS. Recently FNG has provided to us a picture of a North Slope conditioning plant that we have used and included it in our banner picture rotations.
Q29: Who owns the gas trucks, pipes in ground, conditioning plant, propane tanks on the river system, if the State pays for it?
Will some one lease it?
Who pays for the maintenance?
TO BE ANSWERED
Q30: What is the maximum bcf out put if the state supports and finances the conditioning gas plant using the FNG land on the North Slope?
TO BE ANSWERED
Q31: In areas not connected to the gas lines, can propane be delivered and used at -55?
A: From Ron Therriault - My mom has had propane at her house in NP since 1960. You have to either bury the tank like EVERY restaurant does now, (same thing as diesel freezing in above ground tanks) or insulate the lines. All we ever had to do was pile snow against it and it never froze up, and I have seen -72 when I was young. And or foam insulation too! Most people run into problems where they kink or turn the line too sharp. Same issues occur with water and fuel lines. As far as the one person who ridiculed the idea of having heat tape on a propane line, yes only a fool would do that.
Q32: In response to the Fairbanks Daily News Miner editorial by Dermot Cole...... he said "Our Plan lacked a detailed analysis that shows potential private benefit and potential public gain."
A: In his editorial board room being quizzed by 4 from the News Miner .... We said, "FNG is not allowed to include in their rates any costs associated with grant funds provided by the State of Alaska, period. Our Plan is simple, we are asking for the State of Alaska to provide grant funds to construct the LNG Plant up North, which is $210 million, $30 million to purchase trucks and trailers, $31 million to expand the distribution system and $48 million to build out the river propane distribution system. FNG will not be allowed to include those grant funds in their rates. The benefit goes to us the purchasers thanks to the State of Alaska. Those grant funds allow us the opportunity to purchase FNG’s gas at 15.00/mcf. FNG is the first organization ever that was able to get a long term contract for LNG from the producers. They even invested their own money to get the permits, secure the land and design the LNG Plant. Yes, I would bet those costs are already included in the 15.00/mcf. This is a 50% reduction in oil prices and we stand behind those numbers. We cannot speak for the RCA. Dermit’s comments about setting up some other government initiative, is essential. Nothing and I mean nothing in our Plan prohibits that from happening. Our Plan is clear however—LNG must arrive in Fairbanks and Propane in the Interior within 2 years, at least 25% reduction and benefit all of Alaska. If the proposed Municipal Utility can do that, then fine.
But, I would want to read exactly how it will be done within the time frame established. In Dermot’s 10th paragraph in his blog he states something I do not remember any of us saying. I remember us saying “Fairbanks Natural Gas would gain from a state grant (not subsidy and we do not mention subsidy in our Plan) because energy prices will be so much lower that whatever the gain is to the hedge fund, it would be a small price to pay and people in Fairbanks will benefit greatly”.
Finally, Dermot is correct we must convince the Legislature and Governor that we need there help for us to solve our energy problem.
Q33: The environmental costs have historically plagued our rural villages for years. If we switched to propane for heating our homes that might be a long term clean up solution?
A: The long term 100 year outlook of potential savings of the environment would be tremendous. What we are proposing is propane be used in home heating space instead of diesel fuel oil. Therefor a vast percentage of reduced fuel usage would reduce future spills and therefor water pollution issues. Some communities have upgraded their tank farms, but many still do not meet current codes. Using propane would save the State and Federal government millions of future environmental issues costs.
Q34: FNG has showed all of their customers that they are more than willing to charge $23.35 per mcf which ties natural gas prices directly to fuel oil costs. They are buying Cook Inlet gas that is heavily State subsidized and transport it on a paved well maintained highway. What is to keep you from becoming just another FNG, GVEA, PetroStar, Amerigas, or Sourdough Fuel that has no sense of community or concern for Alaskans?
A: Actually FNG got squeezed on their gas prices a few years back and because of the shortage of gas FNG cost went up dramatically and as a result passed those costs on but their current gas price is 22% below the cost of the equivalent cost of fuel oil BTU's. Please click on this link ......
Q35: How do you propose to keep the producers from selling us our own resources at prices that are tied to the world market which are currently close to your stated delivered cost of $15.50 per mcf ?
A: If the State is willing to fund this project they first should have a GUARANTEED PRICE DELIVERY CONTRACT BASED UPON THE FNG & EXXON GAS CONTRACT. As a matter of fact that is what the LOWELL GROUP would recommend that some type of contract mechanism be negotiated with FNG because the State would own the Gas Conditioning Plant on the Slope.
Q36: Are you willing to put ASRC, PetroStar, Sourdough Fuel, Usibelli, Crowley, Doyon, FNG, our legislators, and the State on notice that we are no longer going to put up with their monopoly on fuel costs in the Interior and Rural Alaska?
A: Our plan is hopefully an answer to your question. We do not blame the private sector businesses for their position of attemption to extract maximum profits but the community, and that is us, needs to solve our energy cost problems and that is what the plan will do. Then again, the Good Samaritan's role is to see a need and pay the bill not to blame or lecture the freezing and dying soul about his personal habits or a victim of his own circumstance. If a war breaks out in the middle east and the forecast is for diesel fuel to go to $9. per gallon and I see my native brother has to pay $18+ a gallon to heat his home. As a good Samaritan I cannot walk by his nearly blue freezing corpse un-noticed it is my duty to assist him in his needs. The State is us. I am my brothers keeper. We must do something to help those who need help. I cannot blame my dear friends above who walked by and saw us naked, bleeding, frozen and blue hurriedly stepping to the other side of the road with their hands in their pockets and as they blame us for not cutting more firewood.
Q37: Can propane trucks deliver propane at -40ºF?
A: Well we see those propane trucks through the ice fog delivering propane all winter already. Propane does remains a liquid at -44ºF at atmospheric pressure, so if you have an above ground tank at -44ºF you will not have any vapor pressure to feed propane gas into a system. A simple answer to your question is “Yes” with a larger tank that is buried you can maintain enough pressure and vaporization rate to satisfy a residential application. See how cold weather affects tank capacity.
Q38: I am against State ownership or participation. I believe the free market should do this?
A: There is an easy answer to that. Bradley Lake is now one of the cheapest sources of electricity on the Railbelt. Because the risks were so high the State took a 50% ownership. The State's participation in the Bradley Lake project allowed the substantial cost of the project to be spread out over a period of time that exceeded what would have been available through FREE MARKET bond market. This is the true function of government to assume risks to great for the FREE MARKET to bear and yet for a large public benefit.
On a continuation of the above..... Bradley Lake Hydro became a reality after long contract disputes and the wholesale electrical power sale agreement was negotiated ONLY because there was State participation. The State was the main source of payment and security, the power sale agreement was integral in arranging the permanent long term financing. A unique attribute of the Bradley Lake power sale agreement was the payments continued for an additional 20 years after the long term bonds used to fund the project were schedule to be retired. This structure was designed to repay the State for the considerable capital that was contributed to the project but also served to extend the time frame that the FREE MARKET was not willing to bear in order to amortize the cost of the project. We believe that those IDENTICAL principals can be applied to also lowering the cost of home heating space for all Alaskans.
Great question. Keep them coming. We have a great GRASSROOTS CITIZENS GROUP ready to answer every question.
Next
Who, exactly is funding this rather oblique group?
Who are the members?
You mention "cheaper energy from GVEA". What sort of energy savings is GVEA going to pass on to consumers? Are savings going to be tied to the Henry Hub or to the Alaska standard of 'what the market will bear'?
You have no mention of FNG rates, mark up or savings based on Henry Hub and not based on oil prices. What are these rates and pass through fees?
How will your group harvest their profits? At what cost to the consumer?
In 2002 while contracted by TCC, I presented a health oriented proposal to TCC and the Denali Commission. The proposal was to co-fire the diesel generator at Ft. Yukon with natural gas to improve air quality. The proposal expanded over the months to include FNG and trucking gas from the slope to Fairbanks and Nenana to barge to the villages. This proposal was monitored by Dr. Dennis Whitmer of UAF and Brent Sheets of DOE with intellectual property rights filed with UAF. The project was progressing but FNG suddenly stopped all communications when Dan Britton took leadership at FNG. Contact Dan B. to verify the details of project that was underway. Your claim to "(Another confession, it was our idea)" in the article was false in all respects. You should have done more research and homework.
Why are you not working and associated with a viable, believable group such as IANGU instead of looking at ways to increase your own profits?
How, exactly will this secret Lowell gain profits from their endeavors?
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This "GAS-IN-2-YEARS" plan is based on real contracts, real permits and State and private entities, and does not rely on a group trying to force a producer or the State into selling its gas at below market rates. The inclusion of State Grants coupled with Regulation of the Gas Utility provides for the most likely project to succeed.
Please keep emailing us your questions......
Thank You,
THE LOWELL GROUP