Towns in Transition: Fairbanks, Resolving energy issues 

By Heidi Bohi for Alaska Business Monthly (June 2011)

You know you’re from Fairbanks if you’ve driven own the road and seen a sign that says “Mushers Crossing.”

You know you’re from Fairbanks if the 365-mile trip to Anchorage is a weekend trip.

You know you’re from Fairbanks if 68 percent of your energy budget goes to heat your home.

Okay, so the last one isn’t a joke. And it’s especially no laughing matter if you’re one of more than 31,000 residents in the community who, for the past 20 years, have continued to brace themselves against energy costs that are on average 10 times higher than Anchorage and add up to a $618 million annual tab for fuel and electricity needed to heat and light homes and buildings and transport people and products coming in and out of the community. Besides the crippling heating bill, 16 percent of these energy costs go to electricity and the remaining 16 percent to transportation.

In January, the coldest month of the year, it is not unusual for temperatures to dip between -30 and -60 degrees during the long winter season, and then shoot up into the 90s during the summer. With heating oil at almost $4 per gallon and electricity at more than 18 cents per kWH, it is easy to see how monthly operating costs can quickly eat up business profits, contributing to a cost of living that is almost 30 percent higher than the national average.

Energy Drain

Besides the drain on locals’ wallets, the energy crisis that plagues Alaska’s second largest community – along with 70,000 other residents in the surrounding North Star Borough communities – results in a host of other problems in terms of both economic development and quality of life. Local leaders and elected officials repeatedly point to this as the No. 1 obstacle facing the community.

“Ninety percent of every dollar spent on energy leaves the community,” says Jim Dodson, president and chief executive officer of the Fairbanks Economic Development Corp. says. “It has almost no multiplier effect.”

As the cost of fuel continues to increase, increasingly, locals rely on burning wood as a major source of affordable heat, creating air quality issues in the bowl-shaped area. It is not uncommon for the borough to ask people to voluntarily stop wood burning when the air quality in the area drops below federal standards. During the coldest part of the winter, air pollution levels are often higher than readings during the summer wildfire season as fine particles build up in the air.

The Environmental Protection Agency (EPA) designated the Fairbanks area as one of 31 nationwide that have not attained the fine particle standard of 2.5 to protect public health from harmful levels of particulate matter. Although the borough is developing a plan to reduce pollution so it can be reclassified as meeting attainment standards, until the community comes up an alternative form of energy, there is not much that can be done by the 2014 deadline.

“We are under the gun with EPA,” Dodson says.

Fairbanks also struggles with one of the highest unemployment rates in the state, consistently coming in at about 7.5 percent – it 8.8 percent nationwide – but it is difficult to attract new businesses to the community because of the high operating expenses resulting from energy expenses.

With energy impacting every aspect of Interior living from private and public transportation to home construction, after years of optimistically banking on the potential gas pipeline, city, borough and FEDC are taking matters into their own hands. To date, most agree the best bridge solution for lowering energy costs in the near future is a natural gas trucking operation proposed by the borough’s port authority. If the plan gets the $250 million in State support it is requesting, it would be even more economically feasible. The borough also has agreed to contribute $300,000 to help launch the project. If the proposed project becomes a reality, Dodson estimates it could reduce the city’s current energy costs by 45 percent to 60 percent, or about $50 million.

Although it is not a new idea, Mayor Jerry Cleworth says, “I sense an urgency that I have not felt in the past.”

Delaying a solution could also put local military bases under scrutiny for being shut down if the Department of Defense decides that energy cost would make operations economically prohibitive.

The Alaska Gasline Port Authority, a joint venture of the borough and the City of Valdez, would buy Fairbanks Natural Gas, a private company that holds a contract to purchase North Slope natural gas from ExxonMobil. The port authority would expand the company’s fleet of trucks, which now haul gas from Cook Inlet, and supply North Slope gas to Fairbanks gas customers and the Golden Valley Electric Association (GVEA) power plant in North Pole. The authority would fund the purchase and expansion by issuing bonds, which would be paid off by local gas customers and GVEA.

Visitor Industry

Not unlike the rest of the state’s tourism industry, Fairbanks has had some slumps relative to the record-breaking numbers in 2008 before the recession and change in cruise ship deployments, though it continues to be a mainstay of the economy there. Most of this decline can be attributed to the reduction in the number of cruise-land tours featuring the Gulf of Alaska. Unlike the roundtrip Inside Passage voyages, the Gulf routes land tours typically begin or end in Fairbanks where passengers shop and take tours before returning home.

“The reports from Fairbanks-based tourism businesses vary dramatically,” Deb Hickok, president and CEO of the Fairbanks Convention and Visitors Bureau (FCVB) says of about 400,000 visitors who make their way north during the summer. Larger companies not as diversified still report their numbers are down, while those operators with more of a mix of independent, international and local visitors are reporting slight increases.

The winter tourism market attracts about 60,000 visitors a year and has grown slightly over the past five years, in part Hickok says, because it comprises tourism, as well as business and convention travel, and it may also be benefiting from the organization’s shoulder-season marketing efforts. Bed tax figures indicate that from 2009 to 2010 there was a 9 percent increase, but from 2008 to 2009, there was a 13 percent decrease. Based on anecdotal information, she expects the cruise market to be flat this year, but there should be a slight increase in the number of independent and international travelers along the Railbelt. Princess will return a ship to the Gulf of Alaska in summer 2012, which is welcome news for Fairbanks tourism businesses that rely heavily on cruise passengers.

One of the largest international inbound markets is Japan, and Fairbanks is serviced with direct flights from there in August, as well as winter, though she says it is too soon to see how the recent earthquake and tsunami disaster will affect recreational travel this year.

Although Fairbanks has its share of challenges, the locals strongly support the visitor industry and other key business sectors that contribute to the economy and quality of life.

“Fairbanks has always come through severe economic cycles and there’s a can-do attitude that impresses me,” Cleworth says looking back on his 59 years living there. “No matter what comes our way we always just make things work.”

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