ENSTAR Caps the Price. Stedman Eyes the Debt.

A 30-year gas supply contract being negotiated between ENSTAR Natural Gas Company and Glenfarne Alaska LNG would cap the price Southcentral Alaska ratepayers pay at $16 per million BTU with annual inflation adjustments — a structure ENSTAR says shields customers from project cost overruns. State Senator Bert Stedman warned a Senate Finance Committee hearing Tuesday that the way Glenfarne plans to finance the underlying pipeline could pile costs onto those same ratepayers by another route, to the tune of $3.3 billion over the life of the deal.

ENSTAR — which serves more than 150,000 customers in Anchorage, the Matanuska-Susitna Borough, and the Kenai Peninsula — is hunting for a replacement for declining Cook Inlet gas, with existing supply contracts set to expire in 2033. The utility currently pays a weighted average of about $10.80 per MMBtu for Cook Inlet gas. The Glenfarne deal would be more expensive on its face, but ENSTAR President John Sims told the committee the relevant comparison is to available alternatives, not historical prices. "That is not subject to cost overruns," Sims said of the fixed price. "The biggest difference is this is firm."

The contract covers two phases. ENSTAR would first take delivery through an LNG import terminal; if Glenfarne's larger Alaska LNG export project proceeds, a transition mechanism would shift the utility to pipeline gas, and the export project would purchase the import-terminal assets. Sims said ENSTAR is not putting equity into either project.

Stedman's concern was the financing of the pipeline itself. Glenfarne plans to use private-market debt rather than the federal loan guarantee authorized under the Alaska Natural Gas Pipeline Act, which would price debt at the 30-year Treasury rate plus 0.375 percent. Stedman said private financing would likely cost a full percentage point more — and on debt of the scale contemplated, with earlier industry analysis identifying up to $28 billion in eligible federal-guarantee debt, that spread compounds to roughly $110 million a year.

He initially put the 30-year total at $2.5 billion before correcting himself: "Mr. Chairman, in my enthusiasm I misspoke a minute ago. I used an erroneous number that a 1% change in cost of debt would be $2.5 billion. $3.3 Billion. $3.3 Billion."

The figure matters because the Legislature is separately weighing roughly $150 million in property tax relief for the pipeline. By Stedman's math, the financing cost would erase most of it. "If we give them, say, $150 million in tax relief, yet they cost us another $110, we only have a margin of $40," he said. "That doesn't make good business sense to me from a consumer's perspective."