Homer Alaska - News

Story last updated at 4:07 PM on Wednesday, June 20, 2012

Is gas worth its cost?

Analysis shows good return on investment

By Michael Armstrong
Staff Writer

As Homer and Kachemak City plan for a natural gas line to be built from Anchor Point, home and business owners face a big financial decision: How much will it cost to convert to natural gas and is it worth it?

In considering the cost of conversion, property owners have two calculations to make. The first is what their share will be of assessment districts to build a distribution network from the feeder line running by the Sterling Highway, up West Hill Road and to Fairview Avenue.

The second calculation depends on the home or business owner's building and lot.

At a June 11 work session, the Homer City Council discussed ideas for creating a Homer Special Assessment District to build out the natural gas line.

Options ranged from letting property owners create their own assessment districts by petition to the city leading the process. The city could build a line to the entire city, a core area in population centers or a core area with lines running along West Hill Road, across Skyline Drive and along East Hill Road.

Estimates range from $2,900 per lot for the core area to $3,326 a lot for the entire city. That doesn't include lots along a feeder line, although City Manager Walt Wrede told the council it might be legally possible to assess those property owners and thus drop the per-lot cost.

Kachemak City also is considering a build out, with its council voting next month on an ordinance. Kenai Peninsula Borough residents can create Utility Special Assessment Districts, or USADs, as was done in Anchor Point for neighborhoods near the line built in 2010. Construction of a distribution line for the Anchor Point USAD is going on now, with service expected by winter. Determining where an assessment district goes and who is included determines the cost per lot.

For USADs, that can be tricky, said Charlie Pierce, southern division manager for Enstar Natural Gas, Kenai. For a neighborhood, setting the boundaries involves looking at the distance of the distribution line and the number of lots.

"The further you go, the more footage you have, the more lots you have," Pierce. "You kind of have to weigh it out, take some time and think about it."

USADs are initiated by a neighborhood leader starting a petition. The borough and Enstar can work with neighborhoods to help set boundaries and determine costs.

Figuring the cost for converting appliances in a building can be more complicated. Do you replace an entire furnace? Do you convert from a forced air furnace to a boiler that does heating and water? Can you convert an oil burner unit in a boiler? How many appliances do you replace at a time?

"I would recommend that they pick the appliance that is generating the greatest amount of expense and pick them off one at a time," Pierce said.

Electric hot water heaters, for example, can cost seven times that of a natural gas heater, Pierce said, and can be an appliance to replace at a modest cost with a high return of investment.

For most homes and small businesses, the basic cost includes a service line and meter at about $1,050 under the 2013 tariff for a 100-foot or less line. Plumbing for gas lines in the building and venting for appliances also are other upfront costs. Pierce recommended plumbing for future appliances from the start.

Under an analysis by Kenai Peninsula Borough Assembly member Bill Smith, who represents the Homer area, Smith looked at 10 scenarios for eight houses, a retail shop and an office building. He used actual buildings and annual fuel bills. He also considered oil burners, oil furnaces, oil space heaters, a propane boiler and a propane space heater. The analysis calculated how long it would take with gas savings to pay off the investment cost for appliances alone, and with the service line and meter and extension costs included (see chart, page x). The analysis includes labor costs, parts and new purchases. Including assessment district costs, the most expensive conversion was $13,616 and the least expensive was $5,186. All investments were paid off within six years and one within two years.

"Where can you put your money and get 100 percent of it back in five years and it keeps going?" Smith said. "That's a good investment."

Some conversions have a minimal cost, like converting a propane space heater to natural gas. Mark Vial of Specialty Stoves of Alaska said to do that requires changing a few parts and adjusting the pressure on valves.

"We're geared up to do the Rinnai and the Monitor propane gas models," he said.

For new gas heaters, since they come ready for natural gas, the only cost is for the heater and installation. Gas heaters start at $1,800 Vial said. Some, like the Jotul stove, don't need electricity to run.

Smith calculated the cost of converting a propane boiler at $810 and a space heater at $890.

One consideration in converting appliances is the lifespan of a unit. Smith noted that boilers wear out and would have to be replaced anyway

"That's really not the cost of conversion," he said.

Converting from an inefficient old oil heater to a new gas heater also can result in more savings not just through the fuel savings, but in getting a better, more modern unit.

In Anchor Point where property owners have already converted to natural gas, the cost savings has been dramatic.

"It's drastically cut down our overhead," said Mary Trimble of Coastal Realty, who converted from propane to natural gas in September 2011. "It's a fraction of the cost — initially looking like 25 percent."

Mary and Emmitt Trimble own several rental apartments in the new USAD and also plan to convert from propane. For a 2,300-square-foot home they had been paying $600 a month, and that was just to keep the home at temperatures in the 60s. The cost savings for natural gas has made selling homes easier, too. Coastal Realty recently sold a large home that had $600 and more propane bills that's converting to natural gas.

"When people are looking at long term and you're paying $400,000 for a house, that's definitely a plus," Trimble said.

The borough also has seen savings for Chapman School. For the 2011 fiscal year, July 1 to June 30, it cost $57,758 to heat the school with fuel oil. For the 2012 fiscal year, including last winter, with natural gas the cost was $22,371 for heating — 38 percent of the cost of fuel oil. Fuel costs for other schools for 2012 were $128,000 for West Homer Elementary School, $80,000 for Homer Middle School and $314,000 for Homer High School — all the highest bills since 2009.

Smith noted another savings in converting to natural gas: a lower carbon footprint. Natural gas reduces carbon dioxide emissions by a third for fuel oil and half for electricity, he said.

"What I see natural gas is, it's going to take a long time before we have enough alternative energy to take care of our needs," Smith said. "Natural gas is a great segue."

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


Case studies: Cost to convert to natural gas

Conversion cost includes labor, parts

Analysis by Bill Smith; local improvement assessments estimated, does not include feeder line lots in assessment area

House A

2 stories, 2,266 square feet

Oil boiler (hot water and heat); replace burner

Annual oil cost: $3,437

Annual natural gas cost: $1,173

Annual savings: $2,264

Conversion cost: $1,870

Service line and meter: $1,050

Total investment (not including main extension): $2,920

Years and months to return on investment: 1 year, 4 months

Cost with main extension, core area (at $2,909 per lot): $5,829

Return: 2 years, 8 months

Cost with main extension, whole city (at $3,326 per lot): $6,246

Return: 2 years, 9 months

House B

2 stories, 1,672 square feet

Propane boiler; convert existing boiler

Annual oil cost: $3,481

Annual natural gas cost: $746

Annual savings: $2,735

Conversion cost: $810

Service line and meter: $1,050

Total investment (not including main extension): $1,860

Years and months to return on investment: 8 months

Cost with main extension, core area (at $2,909 per lot): $4,769

Return: 1 year, 2 months

Cost with main extension, whole city (at $3,326 per lot): $5,186

Return: 1 year, 11 months

House C

2 stories, 1,025 square feet

Oil space heater; replace heater

Annual oil cost: $2,010

Annual natural gas cost: $687

Annual savings: $1,323

Conversion cost: $2,150

Service line and meter: $1,450

Total investment (not including main extension): $3,600

Years and months to return on investment: 2 years, 9 months

Cost with main extension, core area (at $2,909 per lot): $6,509

Return: 5 years, 2 months

Cost with main extension, whole city (at $3,326 per lot): $6,926

Return: 5 years, 3 months

House D

2 stories, 1,832 square feet

Oil furnace; replace furnace

Annual oil cost: $2,983

Annual natural gas cost: $917

Annual savings: $2,066

Conversion cost: $4,380

Service line and meter: $1,050

Total investment (not including main extension): $5,430

Years and months to return on investment: 2 years, 5 months

Cost with main extension, core area (at $2,909 per lot): $8,339

Return: 4 years, 4 months

Cost with main extension, whole city (at $3,326 per lot): $8,756

Return: 4 years, 3 months

Office building E

2 stories, 7,200 square feet

Oil boiler (hot water and heat), replace burner

Annual oil cost: $6,039

Annual natural gas cost: $2,522

Annual savings: $3,517

Conversion cost: $2,120

Service line and meter: $1,050

Total investment (not including main extension): $3,170

Years and months to return on investment: 11 months

Cost with main extension, core area (at $2,909 per lot): $6,079

Return: 1 year, 10 months

Cost with main extension, whole city (at $3,326 per lot): 6,496

Return: 1 year, 10 months

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