Fairbanks energy overhead: cost and supply No. 1 concern.

• Author: Bohi, Heidi
• Position: TOWNS IN TRANSITION

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When preparing a business prospectus, any company considering locating to Fairbanks to partake of its relatively healthy economy, would be wise to take a long hard look at the projected overhead costs under the energy expenditures column. Like many communities, when energy costs escalated in 2008, businesses scrambled to balance staying competitive and in the in the black. Ensuring that energy costs are sustainable, affordable and predictable, while reducing PM2.5 (Particulate Matter, 2.5 micrometers or less) emissions, is one of new Fairbanks North Star Borough Mayor Luke Hopkins' top priorities. Although the community is a well-positioned hub for Interior villages, mining, oil and gas support, tourism, and Arctic research, and is known for its local camaraderie, the cold, bitter truth is that the cost of fuel is a significant concern for businesses considering investing in the community and if State and local leaders do not find a way to lower these costs soon, the economy could stall.

"The cost of energy in our community keeps us from taking advantage of all the opportunities that we have," Hopkins says. "When the price of oil ran up a year ago, it consumed a great deal of discretionary income in our community."

In January, the coldest month of the year, it is not unusual for temperatures to dip between -30 degrees and -50 degrees and then shoot up into the 90s in June. With heating oil at $2.70 per gallon and electricity at 18 cents per kilowatt hour, it is easy to see how monthly operating costs can quickly impact business profits, discretionary investment and spending.

RISING ENERGY COSTS

Although the unemployment rate is almost 7.5 percent--compared to the national average of 10 percent--it is harder to create jobs when energy costs are unstable. Fairbanks and the adjacent communities in the borough spend about 10 percent of their annual incomes on home energy, compared to 4 percent in places like Anchorage. In the Interior, the cost of electric generation, space heating and transportation has more than doubled in the past four years. During 2008, energy prices were so unstable that businesses couldn't develop good cost projections, and while prices have settled back down to more affordable levels, they are expected to continue rising over the long-term.

To further compound this problem, borough residents rely on burning wood as a major source of renewable and affordable heat; as energy costs increased, this...