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FNG wants to serve larger area The local distribution company for Fairbanks wants to serve North Pole; would require firm supplies; IANGU may compete Eric Lidji For Petroleum News
Fairbanks Natural Gas LLC wants state regulators to expand its service area.
The local distribution company for Fairbanks is asking the Regulatory Commission of Alaska for permission to also serve the city of North Pole, Eielson Air Force Base and areas in between, essentially covering the entire Fairbanks North Star Borough.
The request suggests Fairbanks Natural Gas is increasingly confident about its ability to secure a stable gas supply for the region, a challenge facing the company for years.
The request also sets the stage for competition or collaboration with other players.
By expanding its service area, Fairbanks Natural Gas would be required to provide service to any eligible customer in the area. Fairbanks Natural Gas said the $27.25 million price tag to expand would be paid for by private equity, and offset by the additional revenues of increasing its customer base. The company contends that the larger service area would reduce costs for everyone through greater operational efficiencies.
The company also argues the expansion would benefit consumers across the Fairbanks North Star Borough by making the option of natural gas available. While natural gas has occasionally been more expensive than heating oil in the Interior, it is currently cheaper, and likely to remain so once Fairbanks Natural Gas files a system-wide rate case in 2014, becoming economically regulated after a decade of relatively little economic regulation.
The expansion depends upon Fairbanks Natural Gas completing a large liquefied natural gas storage facility in 2015 and securing additional supplies from Cook Inlet or the North Slope, the company wrote in its application. But with a yes vote from the RCA within the next six months, the company said it could soon begin major pipeline construction.
Fairbanks Natural Gas currently delivers 900 million cubic feet of Cook Inlet natural gas per year to some 1,100 customers in Fairbanks, trucking LNG from Point MacKenzie.
Supply crunch stopped growth Since the RCA certificated Fairbanks Natural Gas in 1997, it has expanded its service twice — in 1999 and 2005. The service area now covers an area bounded by the Fairbanks International Airport, the University of Alaska Fairbanks and Fort Wainwright.
In its recent application, Fairbanks Natural Gas told the RCA it always intended to expand further, but was thwarted by the recent tightening of Cook Inlet gas supplies.
The situation is different now, Fairbanks Natural Gas contends.
With a 5.25 million gallon storage tank in the works, Fairbanks Natural Gas will be able to stash excess supplies in the summer, increasing sales by some 400 million cubic feet per year.
While Cook Inlet may or may not be able to accommodate the increased demand, Fairbanks Natural Gas is hoping to soon switch its supply source to the North Slope.
A sister company called Polar LNG LLC is currently working to build a North Slope liquefaction plant and trucking operation to take advantage of a supply contract signed with Exxon in 2008. Through their mutual parent company Pentex Alaska Natural Gas Co. LLC, Fairbanks Natural Gas and Polar LNG are among the companies seeking funding for the project from the Alaska Industrial Development and Export Authority.
Regulation issue resolved Another change under way is regulation.
Earlier this year, the RCA accepted a settlement Fairbanks Natural Gas negotiated with the state Attorney General and the Fairbanks North Star Borough, under which the utility is willingly accepting rate regulation after a decade of changing its rates mostly at will.
Under the settlement, Fairbanks Natural Gas must file a rate case by June 2014. The case would tie Fairbanks Natural Gas’ rates directly to costs, with an approved rate of return.
While Fairbanks Natural Gas started life as a rate regulated utility, the RCA subsequently gave it the ability to change its rates up and down, at will, to better compete against the unregulated fuel oil companies that dominate the home heating market in the Interior.
The issue frequently caused public debates, especially during stretches when natural gas was more expensive than heating oil, and when Fairbanks Natural Gas reported profitable years. In October 2012, Fairbanks Natural Gas revealed it was in discussions with the Parnell administration about returning to rate regulation. Asked why, Fairbanks Natural Gas President Dan Britton said the company saw rate regulation as an inevitability given its plan to seek public financing for a North Slope liquefaction plant and its expectation of someday increasing its market share in the home heating sector across the Interior. Britton also said the cost of revisiting the issue was negating the benefits of exemption.
Another player in the mix Under state regulations, when a utility wants to change it service area, the RCA must put out a call for interest from other entities planning to request an overlapping service area.
The deadline for responses is May 9.
In late 2012, the cities of Fairbanks and North Pole and the Fairbanks North Star Borough created the Interior Alaska Natural Gas Utility, a municipal distribution utility charged with launching a public-private partnership to bring $15/Mcf or cheaper gas to the region.
In January the IANGU told the RCA it was “initially looking to provide natural gas service to the North Pole and Badger Road area with expansion to the remainder of the un-served areas in the FNSB,” but said it would wait to actually apply for this initial service area until after it found a partner in the private sector. The IANGU believes it can support the project with tools not available to the private sector, such as tax-exempt financing, reduced taxes on operations, grants and low-interest loans, but plans to partner with “established gas utilities for the construction and operations of this new utility.”
The IANGU also responded to the AIDEA request for interest last year.
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