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FNG to offer new interruptible service New rate class would allow utility to expand sales without expanding capacity, would make natural gas available to more customers Eric Lidji For Petroleum News
Looking to temper seasonal swings in demand, Fairbanks Natural Gas wants to start offering interruptible service to smaller volume customers at a discounted rate.
The lone natural gas utility in fuel oil dominated Fairbanks is asking the Regulatory Commission of Alaska to approve a new “small volume interruptible rate.”
The rate would be available to customers who expect to buy at least 2 million cubic feet of gas per year and who can also switch between fuels on as little as six hours notice.
With that minimum volume, the new rate is geared toward large commercial customers, although the service could indirectly cover individuals in larger apartment complexes.
In return accepting interruptible service, customers who chose the rate would get a 10 percent discount of the large commercial rate, currently $22.66 per thousand cubic feet.
The seasonal swing in Fairbanks is among the most dramatic in the world. Because winter demand can be five times higher than summer demand, Fairbanks Natural Gas said it is often faced with unused capacity for months, but can’t add more customers in the summer without further tightening supplies in the winter. “The solution is to serve additional customers when FNG has excess capacity, but not have those customers on the system at the peak when FNG’s capacity is limited,” the company wrote to the RCA.
Fairbanks Natural Gas said several potential customers have already approached the utility requesting interruptible service, believing that the cost benefit of buying natural gas for some of the year outweighs the inconvenience of switching fuels on short notice.
Natural gas is usually, but not always, cheaper than fuel oil in Fairbanks.
Fairbanks Natural Gas argues that adding interruptible users will lower the average cost for all customers by spreading fixed costs over more cubic feet. It would also allow Fairbanks Natural Gas to increase sales without expanding supplies or facilities.
Still eyeing North Slope The proposal is an interesting twist on an issue long facing Fairbanks Natural Gas: captive customers. Fairbanks Natural Gas is not economically regulated, meaning it can change its rates without the approval of regulators. For years, that led to concerns that some customers would be “captive” to high prices, unable to easily switch fuels.
Fairbanks Natural Gas and the Alaska Attorney General addressed that concern in a 2009 settlement, allowing Fairbanks Natural Gas to stay economically deregulated as long as it tethered residential rates to those paid by large commercial users, a class of customers that typically can switch easily between fuels should one become prohibitively expensive.
Fairbanks Natural Gas already offers interruptible service to large volume customers, such as major industrial customers expected to buy more than 50 million cubic feet in a given year. Those customers are guaranteed only a two-hour notice before curtailments begin and the price per hundred cubic feet is worked out through a negotiated agreement.
Fairbanks Natural Gas is still working to switch its supply source to the North Slope from Cook Inlet. The utility signed a supply contract with ExxonMobil in 2008, but can’t take advantage of that contract without major infrastructure investments.
In 2009, the Alaska Gasline Port Authority proposed to buy the utility and build the infrastructure needed to connect it to North Slope supplies, a project estimated to cost around $250 million. The Port Authority and its partners recently said that the plan should be ready for financing this spring and could be delivering natural gas before 2013.
Fairbanks Natural Gas has contracted Cook Inlet supplies through May 31, 2013.
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