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Interior utility demands conditions Interior Alaska Natural Gas Utility believes the RCA should attach specific schedule and cost commitments to any certificate Eric Lidji For Petroleum News
A municipal utility looking to expand natural gas service in the Interior wants state regulators to attach conditions to any certificate it issues for such as operation.
The Interior Alaska Natural Gas Utility believes the Regulatory Commission of Alaska should require any successful applicant to commit to targets for scheduling, costs and construction standards, as well as mandatory annual reporting to ensure compliance.
The RCA recently wrapped up hearings on two separate but similar requests to provide natural gas distribution to un-served areas of the Fairbanks North Star Borough, including the city of North Pole and Eielson Air Force Base. By December, the RCA expects to decide whether to issue a new certificate to the municipal Interior Alaska Natural Gas Utility or to expand the certificate of the privately held Fairbanks Natural Gas LLC (or potentially some combination of the two, an option both applicants find undesirable).
Generally speaking, the Interior Alaska Natural Gas Utility has accused Fairbanks Natural Gas of seeking to expand before it has fulfill all its obligations within its existing service area, while Fairbanks Natural Gas has accused the Interior Alaska Natural Gas Utility of pursuing an ambitious project without financial or technical wherewithal.
Each side also believes it can build out its system faster and more economically than the other, a result of differing views about the most efficient way to structure the project.
‘Specific benchmarks’ Interior Alaska Natural Gas Utility officials proposed conditions at the hearing, saying they would ensure that the system gets built while meeting the needs of the community.
“Frankly, given the failure of FNG to provide service in its existing service area and its continuing failure to commit to any clearly defined plan to provide service in the future, the Commission should set forth specific benchmarks that should be met,” Interior Alaska Natural Gas Utility attorney Robin Brena wrote in a recent post-hearing brief.
The proposed conditions include commitments to reach 80 percent market penetration within six years, to provide service at the “lowest possible cost” and to build a storage system able to withstand supply disruptions. The Interior Alaska Natural Gas Utility also wants the conditions to carry over to any future owners of any distribution system.
The conditions would cover whichever entity gets the certificate, but the concept seems to be largely aimed at Fairbanks Natural Gas. For instance, the Interior Alaska Natural Gas Utility wants the build-out commitment to apply to the existing Fairbanks Natural Gas service area, in addition to a potential expansion area. The proposed conditions also include several provisions concerning any potential sale of the certificated utility, a circumstance possible for either entity, but potentially easier for a private company.
Three Interior municipalities formed the Interior Alaska Natural Gas Utility in late 2012, frustrated that Fairbanks Natural Gas had failed to expand service as quickly as it had originally intended, and concerned about the rates of return inherent in a private venture.
Interior Alaska Natural Gas Utility also proposed a condition unique to its situation: a promise to voluntarily accept regulations through its initial build out. State law exempts publicly owned utilities from economic regulation, except when they compete with an existing utility. (The “competition” question has been raised in this case.) Those regulations would make Interior Alaska Natural Gas Utility subject to RCA ratemaking.
‘Politically motivated’ The Interior Alaska Natural Gas Utility brief accuses Fairbanks Natural Gas of being unwilling to voluntarily accept conditions, agreeing only to “discuss” the idea.
While the Fairbanks Natural Gas brief makes no mention of specific conditions, it presents a view of the project where market conditions will drive all major decisions.
In his brief, Fairbanks Natural Gas attorney Mark Figura accused the Interior Alaska Natural Gas Utility of being “politically motivated.” The ambitious built out plan “blindly commits to a result, rather than proposing a realistic path to a realistic outcome,” Figura wrote. “It makes the politically popular decision to advocate for service expansion that is too comprehensive and too fast to actually accomplish the desired result.”
Fairbanks Natural Gas has blamed market forces for its inability to expand to date.
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