|
FNG signs up with Hilcorp for Fairbanks gas demand
As part of the sale of its liquefied natural gas terminal to Hilcorp Alaska LLC, Fairbanks Natural Gas LLC is entering a supply contract with a Hilcorp midstream subsidiary.
The Regulatory Commission of Alaska initially rejected the gas sales agreement between Fairbanks Natural Gas and the Hilcorp-subsidiary Harvest Alaska LLC on technical grounds. Specifically, Fairbanks Natural Gas forgot to list which customers would be impacted by the deal. After Fairbanks Natural Gas clarified that the deal would impact all 1,120 of its customers, regulators released the gas sales agreement for public comment.
The 10-year contract would start at a delivered price of $15 per thousand cubic feet. The price would increase annually by 2 percent starting in the third year and would be adjusted to the lowest price available in the Fairbanks market starting in the sixth year.
Fairbanks Natural Gas would buy between 850 million and 950 million cubic feet each year and would provide Hilcorp with good faith estimates of its expected demand on both a monthly and annual basis. Hilcorp would be obligated to provide no more than 50,000 gallons of liquefied natural gas on any day. Those supplies would cover the existing customer base, not the additional customers Fairbanks Natural Gas intends to reach through an expansion of its distribution grid - 32 miles added this past summer and another 50 miles planned for next summer. Those customers must wait for additional supplies to become available to join the system. “FNG feels confident that expansion of LNG capacity at Point MacKenzie will happen faster with Harvest,” Fairbanks Natural Gas attorney Mark Figura wrote in recent filings to the commission.
Titan currently owns LNG facility Fairbanks Natural Gas affiliate Titan Alaska LLC currently owns the Point MacKenzie facility, which prepares Cook Inlet gas for delivery to Fairbanks markets by tanker trucks along the Parks Highway. The current Titan supply starts at a base rate of $15.06 per mcf. Titan purchases its gas supplies from Hilcorp. Those supplies are priced under the terms of consent decree that increases by 4 percent each year. As a result, Fairbanks Natural Gas would pay increasingly less, each year, under the proposed Hilcorp contract.
Another difference between the two contracts is the term. The proposed Hilcorp contract would run through 2025, while the existing Titan contract is set to expire in 2018.
Fairbanks Natural Gas also gets an interruptible supply of liquefied natural gas from ConocoPhillips Alaska Inc. The delivered price for that smaller contract is currently $17.35 per mcf. The price is set to increase to $17.85 per mcf this coming winter.
WesPac Midstream LLC recently offered to provide supplies at an estimated price of $14.57 per mcf starting 2017 from its proposed 250,000-gallon per day Cook Inlet liquefied natural gas facility. The proposal was “essentially a take-or-pay agreement” on a 20-year term, according to Fairbanks Natural Gas, which could have created potential liabilities should efforts to build a North Slope natural gas pipeline ultimately succeed.
Fairbanks Natural Gas also believes the proposed Hilcorp contract would provide a better deal than supplies purchased from a proposed North Slope liquefied natural gas terminal, although the utility acknowledges that the project is still being “studied and designed.”
The Alaska Industrial Development and Export Authority and the global infrastructure firm MWH Americas Inc. are jointly developing that project. The project is being funded, in part, through state bonds, loans and grants. “Without the large subsidies, the North Slope LNG plant could not even come close to matching the pricing under the (LNG Supply Agreement),” Figura wrote. The Fairbanks Natural Gas parent company Pentex Alaska Natural Gas Co. LLC unsuccessfully applied to be the private sector partner on the project.
The Regulatory Commission of Alaska is taking comments through Dec. 16.
New rates coming When Fairbanks Natural Gas became a certificated utility in 1997, the Regulatory Commission of Alaska required it to its file gas supply agreements for approval.
The commission subsequently exempted Fairbanks Natural Gas from economic regulation in 2003. With the utility voluntarily re-entering rate regulation, and currently going through the ratemaking process, the status of that provision is now uncertain.
As part of its ratemaking process, Fairbanks Natural Gas wants regulators to include a gas cost adjustment mechanism in its tariff. The mechanism gives regulated utilities some leeway to change rates in response to changes in the cost of gas supplies (as opposed to a complete ratemaking case, which also considers operational costs and rate of return).
“In light of both the restarting of rate regulation and the proposed (gas cost adjustment), it seems appropriate for (Fairbanks Natural Gas) to begin filing new gas supply contracts, effective June 30, 2014, when FNG filed its rate case. This is the first new gas supply contract since that date,” Figura wrote in his recent filings with the commission.
- Eric Lidji
| 