Homer Alaska - News

Story last updated at 2:07 PM on Wednesday, February 8, 2012

Council considers how to pay to get natural gas

Go big, go small or don't go at all?

At a work session Monday night, the Homer City Council mulled over the range of options for building out the natural gas line distribution system should the line be built from Anchor Point to Homer. As part of the city's lobbying strategy to get the Alaska Legislature to fund an $8 million grant to build the pipeline, City Manager Walt Wrede has proposed the city consider the next step in bringing natural gas to Homer: expand the system from the main line generally running along Fairview Avenue.

If the city can show a commitment to building a natural gas distribution system, it might convince Gov. Sean Parnell the city has "skin in the game," the phrase Parnell used in suggesting he might approve the gas line if he sees the city putting up part of the cost.

Rep. Paul Seaton, R-Homer, also has suggested users pay a $1 per million cubic foot tariff to pay back about $2 million of the $10 million cost to bring the line to Homer. Enstar would fund that $2 million and be paid back with the $1 mcf tariff.

"I think it's our 'now or never' moment in getting this," council member Francie Roberts said. "We have to think how we can help the community best economically. How can we help the community achieve this?"

Wrede wrote a memorandum to the council providing a framework for discussions over the next few months. The big question is if the city wants to finance the distribution system. If not, the issue ends.

If the city does want to finance the system, how would it do that?

One option would be a 2,400-lot local improvement district, or LID, built in a core area that's roughly downtown Homer, East End Road, Old Town and Ocean Drive. LIDs are used for things like the Kachemak Drive water-sewer line. Property owners vote on whether to create an LID and how much each lot would be assessed. The biggest previous LID was 85 lots. The distribution system LID would cost about $6.1 million and probably assess each lot owner about $2,500 over 10 years.

"On the whole, I think that's the best way to go," Wrede said. "It kind of scares me. It's an administrative nightmare."

Mayor James Hornaday suggested as a point of discussion making the core area the entire city. Speaking at a public comment period at the end of the meeting, Brad Faulkner backed that approach.

"I'd like to encourage you guys to go big. You're thinking too small for your service area," he said.

Another option would be to eliminate the seasonal sales-tax exemption on nonprepared foods and use about $900,000 in revenues to fund a distribution system. Homer voters backed the seasonal exemption in a previous election after voters in the entire Kenai Peninsula Borough approved it. The Homer City Council could choose not to extend the seasonal exemption without a vote, city attorney Tom Klinkner advised the council.

Going the sales tax route would be simpler, but then everyone in the city would pay the tax. City residents outside the gas distribution system might object, Wrede pointed out.

"The people in the rest of town are going to want to know when they're getting it," he said.

Council member Kevin Hogan asked why Enstar would have to own the gas distribution system.

"If we're financing, if we're paying for it, wouldn't it be in the interest of the public to own it?" Hogan asked.

Wrede said it hadn't occurred to him that the city would want to be in the gas utility business. One option would be for the city to own the line and lease it to Enstar, he said.

Roberts noted that she's heard general support for the gas line and a city-financed distribution system. One citizen not supporting a public-funded gas line dropped off a protest letter at the meeting. Shelly Erickson, co-owner of HomeRun Oil, a home heating fuel delivery company, said she objected to the idea of the city and state funding Enstar's gas lines. Erickson said she didn't oppose Enstar bringing natural gas to Homer.

"I don't think it's right that the city and state would step in and fund a private enterprise like that when Enstar has huge resources that I don't have," Erickson said in a phone interview after the meeting. "I don't think the city and the state should be working together against all the small businesses that support our city while Enstar has deep pockets if they wanted to be here."

Enstar's pockets got a little deeper this month when AltaGas of Alberta, Canada, bought out Enstar's U.S. parent company (see story on page 1 of the Business section).

Hogan also questioned how the new Canadian ownership of Enstar would affect its certificate from the Regulatory Commission of Alaska to provide natural gas to the lower peninsula. Wrede also wondered what the new Canadian ownership's attitude would be toward the Homer project. Wrede said he would take that and other questions to Enstar.

The plan Wrede gave the council asks it to consider several resolutions and ordinances over the next few months. Next on its agenda for the Feb. 27 meeting is considering a resolution expressing its opinion on the $1 mcf tariff. An action plan would be considered March 12, with a public hearing, followed by a resolution creating a core area LID if the council takes that approach.

Michael Armstrong can be reached at michael.armstrong@homernews.com.