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ENSTAR expands operations South: Homer and Kachemak City prepare for natural gas.

How much is too much to pay to heat your family's home? For residents of Homer and Kachemak City, costs can range among an average of $383 per month for fuel oil, $586 for electricity, or $706 for propane. Starting next year, however, much bigger savings are in store as the two communities finally get access to natural gas from ENSTAR Natural Gas Company.

"The City of Homer has been trying to get natural gas for decades," explains City Manager Walt Wrede. "We were in ENSTAR's service area, but it simply didn't pencil out from a company point of view; it would take them too long to recoup their investment."

However, when natural gas was discovered about four years ago on North Fork Road, not far from Anchor Point, things took a different turn. With a source of gas much closer to the city, Alaska State Legislators Senator Gary Stevens and Representative Paul Seaton put money in the state budget with the goal of bringing natural gas to Homer.

"The first year, the governor vetoed most of the money, but provided a $525,000 grant to build a pressure reducing station in Anchor Point and 3,200 feet of line toward Homer," Wrede says. "The next year, the governor vetoed all of the money in the budget, but last year, we were able to get it through."

Trunk Line Construction

According to John Sims, director of business development for ENSTAR, the trunk line--which is the line that will bring gas into the community running from Anchor Point to the terminus of Kachemak City--will cost about $10.7 million. "The state of Alaska has provided an $8.1 million grant, which will leave approximately $2.55 million as ENSTAR's investment," he explains. This amount will be paid off gradually by customers, with ENSTAR expecting to recoup its outlay in roughly ten years.

"Before we could move forward, we had to come up with an acceptable plan that would ensure that Homer residents had 'skin in the game,'" Wrede says. "Once it was agreed that residents would pay the remaining 25 percent of the cost through a $1/mcf tariff, it really spurred the project on." Construction on the trunk line began in March and is expected to be completed this fall.

Distribution System Next

Once the trunk line is complete, work will begin on the main extension--the distribution system that will bring gas to the streets and rights-of-way in Homer--a process that is expected to take about two years. In September 2012, the Homer City Council adopted Resolution 12-069 which initiated the Natural Gas Distribution System Special Assessment District (SAD) as a way to make natural gas available to the majority of the city's residents. The SAD basically defines Homer as one big subdivision that will pay ENSTAR up front for constructing the distribution system.

"The Council had to decide whether to try to make the gas available to everyone, or just to those who could currently afford it," Wrede explains. "They decided to create a special assessment district which would put gas on every street within one to two years, with everyone getting it for the same price.

"It's a pretty ambitious project that will involve about seventy-three miles of pipe at a cost of $12.7 million," he continues. "The city is borrowing the money from the Kenai Peninsula Borough, and it will be paid back through assessments."

Access and Assessments

Every property owner with access to the gas line will be required to pay this assessment, which is estimated to cost approximately $3,200 per lot. The assessment is payable over a ten-year period, and the assessment is not due, and interest does not accrue, until all of the work in the SAD is complete in fall of 2014.

"The city will finance the assessment if lot or parcel owners can't afford it up front at an estimated rate of 4 percent, which is the same rate as the loan that we're getting from the borough," Wrede says. This corresponds to an annual payment of $405, though lot owners can choose to pay the full amount upfront to avoid interest accrual.

While most residents of Homer and Kachemak City will have access to natural gas, some lots and parcels, including those that are undeveloped, have no legal access, are not developable, or that will not serve enough customers, are not included in the SAD. While residents are not required to hook up to natural gas just because they have access to it, property owners in the natural gas SAD will still be required to pay the assessment.

"There have been some naysayers on the project, some who are opposed to the idea of a special assessment district, and others who say that they can't afford to pay an assessment and have no intention of ever hooking up," Wrede says. "Others object to the city subsidizing a private company when it is not ending up with the infrastructure.

"There was public debate and only 14 percent of property owners objected out of the almost four-thousand properties involved," he adds. "Even if they choose not to hook up to natural gas, property owners will still benefit from having a natural gas line run by their properties."

Natural Gas Advantages

Despite its drawbacks, there are many advantages to switching over to natural gas from other heating sources. "When you compare the price of natural gas to propane, electricity, or fuel oil, you see huge savings," says Wrede. "The government buildings in Homer alone expect to see savings of $2 mil lion a year; the owner of the Ocean Shores Hotel in town, who is remodeling one of his buildings, says that he expects that natural gas will save him $30,000 a year."

Rates from January 15, 2013 for a typical single family home show natural gas costing $134 per month, compared to $383 for No. 1 fuel oil, $586 for electricity, and $706 for propane. "Not only will residents experience a lower cost of living, but there are environmental benefits, too," says Wrede. "Homer has adopted a Climate Action Plan with the goal of reducing our carbon footprint, and natural gas is a much cleaner burning fuel than oil. The idea of an oil tank leaking also scares everyone as cleanup is very expensive."

The city expects to see changes in how business is done as well. "Natural gas will save business owners a lot of money, which could provide a real economic shot in the arm. Residents will see a lower cost of living, and it will be cheaper to do business in Homer," Wrede says. "It's a game-changer."

In the short term, the pipeline project is expected to create a lot of construction jobs as well as jobs helping homeowners convert to natural gas. "About three hundred people have already signed up for gas and they are going to need plumbing and heating people to help with their home conversions," Wrede says.

"This is actually kind of fascinating to us, because typically, we install the lines in the street to give us the ability to serve, but in this scenario, people are signing up for service before gas is even available," says Sims, who anticipates that gas will not be available until at least July. "To see people sign up this early is pretty amazing."

Converting to Natural Gas

ENSTAR and a number of local engineers have put out information about how to convert to natural gas, and ENSTAR also has people in its Homer office to provide advice and to sign people up for service. The cost for converting will depend on how many things that a customer wants to change over to natural gas. "For someone who just heats their home with a monitor stove, it will not be that expensive," says Wrede. "Someone who lives in a large, all-electric house, or who needs to replace an old furnace, will pay more."

Even with the initial investment and assessment, residents of Homer and Kachemak City will reap the benefits of natural gas for a long time. "People are excited about natural gas coming to the area and that's very understandable when you look at the costs that they're paying for fuel now," Sims says. "People here are paying a higher per unit cost for heating than the residents of Fairbanks. They will definitely see relief.

"I can't say enough about how much effort these communities have put into this; a lot of work went into making this happen," he adds. "Without their hard work, and the legislature and state allowing the funds to go through, the likelihood of this project happening were pretty slim. Soon it will be a more affordable place to live, and that is all credited to the people of Homer and Kachemak City. They need to be commended."

Vanessa Orr is the former editor of the Capital City Weekly in Juneau.
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Title Annotation:SPECIAL SECTION: Energy & Power
Comment:ENSTAR expands operations South: Homer and Kachemak City prepare for natural gas.(SPECIAL SECTION: Energy & Power)
Author:Orr, Vanessa
Publication:Alaska Business Monthly
Date:Jul 1, 2013
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