City says no to Intrastate Gas

Firm had asked Assembly to help finance utility

Posted: Tuesday, April 12, 2005

The city decided Monday night to stay out of the gas business.

Alaska Intrastate Gas Co. recently asked the city to apply for bonds from the Alaska Municipal Bond Bank to finance building a gas utility in Juneau. It said with the city's help, the company could get a tax exemption on the bonds and lower gas rates up to 39 percent for the customers.

But City Manager Rod Swope recommended voting against the proposal Monday even though the city didn't have to pay under the plan.

"I am concerned about the real or perceived notion that our involvement would unfairly benefit one private sector business over another," Swope said. "It is fair to assume that any customers that converted to gas would have formerly been a user of oil, electricity or gas from an existing company."

Established in 1986, Alaska Intrastate Gas Company is certified by the Regulatory Commission of Alaska to exclusively provide regulated utility gas service in 17 Southeast Alaskan communities, including Juneau. The company needs $12 million for the first phase of building gas facilities in Juneau.

Swope said if the gas company defaulted on the bond, the state could take its funding away from the city.

"We currently receive over $33 million from the state, all of which would potentially be at risk," Swope said. The Alaska Intrastate Gas Co. "indicated that we would not lose our investment since we would then own the gas utility. It is not a business we want to be in."

The Assembly unanimously accepted Swope's recommendation.

"We are just nervous that if they go broke, we will have to take over the gas business," said Assembly Member Merrill Sanford. "There are also concerns that if they get into trouble financially, we will have to give up money from the state for our school systems."

The gas company said it estimates a 26 percent savings over fuel oil without the city's involvement.

"AIGC will acquire most of its customer conversions at the 26 percent savings rate anyway," said Francis Avezac, chairman of the company's board. "The additional savings generated by CBJ involvement will pass directly to the customers through reduced tariff rates."

Juneau resident David Lawrence, who used to work for a gas company in Minnesota, said the city should have considered working with the gas company because it would encourage competition.

"Gas competition will not only save money for customers who switch but may also save money for customers who don't switch, as the oil dealers will attempt to retain them by lowering their prices," Lawrence said.

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