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June 2014

Vol. 19, No. 22 Week of June 01, 2014

IGU details 6-year plan to bring natural gas to FNSB consumers

A new municipal utility in the Interior intends to contract the operation of its system.

This year, the Interior Gas Utility expects to hire a general manager, a chief financial officer and a small support staff to begin work on a natural gas distribution system in North Pole and less densely populated corners of the Fairbanks North Star Borough. But the utility will also solicit proposals for a company to operate and maintain the system, and handle regulatory affairs and customer service such as billing and new connections, according to a detailed six-year plan released by the municipal utility on May 20.

Having received certification from the Regulatory Commission of Alaska in December 2013, the utility is now working to deliver gas to residents and businesses in the Fairbanks North Star Borough at $15 per thousand cubic feet or cheaper by 2020.

The six-year plan sets out targets for making initial deliveries in the heart of North Pole by the winter of 2016 and 2017, expanding the system in six phases between now and 2020 and managing additional requests for service connections as they arrive after 2021.

Work on first two phases

The program for this year includes work on the first two phases. The work on phase one primarily involves hiring contractors and designing the system. The work on phase two primarily involves permitting and establishing rights-of-ways and easements in the area.

The goal is to begin construction next year. The six-phase construction schedule will generally spread outward from the core of North Pole toward the area west of Fairbanks.

Specifically, the program calls for installing distribution lines in the core of North Pole in 2015, along Badger Road in 2016, through areas to the north and west of North Pole in 2017, into the Chena Hot Springs Road area north of Fairbanks in 2018, throughout the Farmer’s Loop Road and Goldstream Road areas near the University of Alaska Fairbanks in 2019 and onto Chena Ridge Road and parts of the borough west of Fairbanks in 2020.

The utility expects to bring 4,974 customers online by 2019, but it is estimating a total potential customer base of 11,920 by 2027, or some 77 percent of the service area.

The Interior Gas Utility previously set a goal of late 2015 for making its initial deliveries in North Pole and an 80 percent market penetration in higher density areas by 2021.

Funding needs remain

The entire six-phase program for installing gas distribution lines and storage facilities is expected to cost some $287 million, according to Interior Gas Utility estimates.

To date, the utility has secured a $7.5 million line of credit from the Fairbanks North Star Borough to use as a bridge loan covering lags in a previously allocated $3 million state grant. The utility has also received an $8.1 million loan from the Sustainable Energy Transmission and Supply fund, which is administered by the Alaska Industrial Development and Export Authority. And the Interior Gas Utility recently received staff help and a $9,500 private donation from the Fairbanks Economic Development Corp.

The utility expects the remaining funds to come from revenue bonds and additional public loans. The state has set aside considerable funding for the project, although some of the funding will go towards the upstream components. The Interior Gas Utility has previously said it expects the bulk of its financial needs to come in the fourth year of its build out, which would give the utility some time to establish financial arrangements.

As a municipal entity, wholly owned by the Fairbanks North Star Borough, the Interior Gas Utility is eligible for financing opportunities not available to private companies.

MWH hired in January

In January, the Interior Gas Utility hired MWH Americas Inc. to help manage the project and develop the initial six-year plan. The global infrastructure firm is also partnering with AIDEA to build a North Slope liquefied natural gas facility and establish a trucking operation into the Interior to supply the Interior Gas Utility system, as well as an existing distribution system in the Fairbanks area managed by Fairbanks Natural Gas LLC. The upstream and downstream endeavor is collectively known as the Interior Energy Project.

While many consumers in the Interior have asked for a cheaper heating option, the Interior Energy Project sponsors have repeatedly said that the success of the project will depend in large part on whether enough consumers actually pay to convert their heating systems to natural gas. To that end, the Interior Gas Utility is considering an “on-bill” payment plan, where the cost of conversion would be added to monthly utility bills. By amortizing the expense, consumers would theoretically see lower heating bills immediately while also paying off the conversion costs over a three-to-five year period.

The Interior Gas Utility is also asking the state to create a conversation program.

—Eric Lidji






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