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Funny River residents won’t pay tariff on gas line like Homer will

Posted: February 5, 2014 - 5:30pm

At first glance, a natural gas transmission line to serve about 700 Funny River Road area properties looks like a small-scale version of the Anchor Point-Homer gas transmission line. 

Like the lower Kenai Peninsula project, the Funny River project on the central peninsula near the Kenai River has these features:

• It will be built by Enstar Natural Gas at a cost of about $100 per foot of pipe;

• The line expands natural gas from existing lines to areas not served; and

• It was funded by an Alaska Legislature grant.

The Funny River project differs from the Anchor Point-Homer project in one key way, though: The grant for the $1.3 million project pays for the entire transmission line, and Funny River residents won’t pay a tariff for part of the construction costs.

In Homer, property owners hooking up to natural gas delivered by the Anchor Point-Homer transmission line from Chapman School on the Sterling Highway to Homer pay a $1 per thousand cubic feet, or mcf, tariff, over 10 years, about $2.5 million of the cost. That tariff had been on the books from about 8 years ago when the Regulatory Commission of Alaska approved the $1/mcf tariff as part of an earlier proposal to bring natural gas to Homer from the North Fork gas fields.

In 2011, Gov. Sean Parnell vetoed a grant to build the Anchor Point-Homer distribution line. Parnell had said he wanted more “skin in the game” from the lower peninsula — a local contribution to the cost of the transmission line. After that veto, Rep. Paul Seaton, R-Alaska, went to the RCA and discovered a tariff already on the books.

“It was still sitting there,” Seaton said. “That was the way we could get the governor’s requirement that we get local ‘skin in the game.’”

In the 2012 session, Seaton put in a revised grant request that included a local contribution. The Legislature passed the new grant, and Parnell did not veto it.

So why don’t new Funny River gas customers also have to pay a tariff? Seaton also represents the Funny River area as part of House District 30 and helped get the grant in the 2013 session.

“It was an oversight,” Seaton said. “I hate to say it: It was on me.”

The Homer situation also was unique, Seaton pointed out. Homer already had a tariff while Funny River did not. If a local contribution from Funny River had been mandated by a grant, that would have meant going to the RCA to impose a tariff.

Enstar will begin this month to build the 13,500-foot gas transmission line extending service from Scout Lake Loop Road on the north side of the Kenai River in Sterling to Huske Street. At Huske Street, the line will be bored about 20 feet under the river to Spring Street and Salmon Drive.

Another factor in the politics of gas line expansion is the relatively higher cost of a distribution line to Funny River Road neighborhoods, Seaton said. To build a distribution line from the end of the transmission line, Funny River residents would have to create a Utility Special Assessment District, or USAD, the Kenai Peninsula Borough funding mechanism to build small, local utility improvements. 

According to the Peninsula Clarion, two such districts are still in the early stages of formation, Kenai Peninsula Borough Mayor Mike Navarre said. The project will come before the Kenai Peninsula Borough Assembly in March. An estimate for a USAD in the Funny River West area with 264 parcels would charge an assessment of $3,549 per parcel.

“There’s a lot of room out there,” Enstar business development director John Sims said of the Funny River area in comparison to the Homer project. “As to the individual footage and distance, it’s a different project.”

A 2011 USAD created to bring natural gas to 268 parcels in an Anchor Point neighborhood had a $2,700 per-parcel assessment. The assessment for the distribution line in Homer is $3,283 per parcel.

“The ‘skin in the game’ was considered to be the much higher expense the rural area was going to have per-lot in distribution cost,” Seaton said of the Funny River project. “There wasn’t an intent to say ‘Oh, some places should be paying more than others.’ The intent is that everybody should contribute to those extensions.”

Seaton said he thinks that for larger gas line transmission projects, such as proposed gas line expansions in Fairbanks, state grants will anticipate some sort of local share.

“I know that the discussion will be that there was to be some kind of arrangements for local participation,” he said.

As a practical matter, the lower Kenai Peninsula gas projects most likely would not have passed the governor’s veto without that tariff, Seaton said.

“I think people understand if we hadn’t had that participation, we wouldn’t have that gas line to Homer, Anchor Point and Kachemak City,” he said.

Michael Armstrong can be reached at michael.armstrong@homernews.com. Peninsula Clarion reporter Kaylee Osowski also contributed to this article.

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