|
RCA probes deeper on Interior LNG Commission seeks more information about Fairbanks Natural Gas, Interior Alaska Natural Gas Utility proposals following hearing Eric Lidji For Petroleum News
State regulators want more information from the two utilities that are separately seeking to supply gas to sections of the Fairbanks North Star Borough, including North Pole.
The requests come about a week after the Regulatory Commission of Alaska held a long hearing in Fairbanks to take comments from the public about the proposals from Fairbanks Natural Gas and the Interior Alaska Natural Gas Utility. The privately held Fairbanks Natural Gas wants to expand its service area to include North Pole, Eielson Air Force Base and other nearby areas. The municipal Interior Alaska Natural Gas Utility wants a certificate of public convenience and necessity to serve essentially the same area.
A certificate requires a utility to prove it is “fit, willing and able” to provide service. The RCA questions are attempting to measure both applicants against those three standards.
The questions the RCA has posed to the utilities pertain to general concerns each utility has leveled at the other since they each requested their service areas earlier this year.
The RCA asked for replies by Aug. 9. The two utilities met the due date, but before the ink was dry the RCA sent out a second round of questions, with answers due Aug. 15.
“Refusing” service? The RCA wanted Fairbanks Natural Gas to explain why it refused to serve some interested customers in the Interior since Pentex Alaska Natural Gas Co. LLC acquired a controlling interest in the company in 2004. The RCA wanted to know how many customers Fairbanks Natural Gas has refused, when the utility planned to offer service to those customers and how the Fairbanks Natural Gas tariff justified refusing service.
Fairbanks Natural Gas told the RCA it has never “refused” service to any customer “where the provision of service was feasible,” and blamed its inability to serve every interested customer in its service area to recent supply shortages in the Cook Inlet.
Fairbanks Natural Gas said the RCA “is well aware of the difficult conditions in the Cook Inlet market. When the utility signed up new customers without sufficient supplies in place in 2006, the RCA “severely criticized” the company, Fairbanks Natural Gas added.
Generally, Alaska utilities are regulated monopolies, and must serve all eligible customers in a service area. The Fairbanks Natural Gas tariff includes a provision suggesting it should favor existing customers over potential customers when supplies get tight. The utility said it has never curtailed supplies to its existing firm customers.
That said, while Fairbanks Natural Gas provided a timeline of its service expansions around the city, it was unable to quantify the potential customers turned down for service because the utility “does not maintain records of oral inquiries about potential service.”
As for its future plans, Fairbanks Natural Gas said it would expand as soon as additional gas supplies become available — either through a storage expansion underway or when the company can take advantage of its North Slope gas supply contract with Exxon.
Interior Alaska Natural Gas Utility believes Fairbanks Natural Gas should be required to provide service to all customers in its initial service area before being allowed to expand.
What will storage allow? The RCA also wanted information about the storage capacity Fairbanks Natural Gas maintains in the region, including a 5.25 million gallon expansion currently in the works.
With additional storage, Fairbanks Natural Gas could serve additional customers in the region, the utility has said in the past. The RCA wanted to know how many more customers the utility could serve, and whether they would be businesses or residences.
Fairbanks Natural Gas currently operates storage and re-gasification facilities with a capacity of 12 million cubic feet of natural gas per day, but said the actual volumes are smaller because these facilities “provide system redundancy and security of supply.”
Construction of the storage expansion was supposed to begin this summer, but Fairbanks Natural Gas said financing and engineering delays pushed the start date back a year.
When the facility comes online in mid-2015, Fairbanks Natural Gas expects to be able to add some 1,245 residential customers, 324 commercial customers and eight industrial customers to its system. Those figures are “hypothetical,” though, the utility noted. The actual figures will depend on the type and location of the customers requesting service.
Fairbanks Natural Gas currently serves 1,107 firm customers.
Questions remain Then came the second round of questions.
To start, the RCA also asked about three moments in Fairbanks Natural Gas history.
First, the RCA wants information about the consent agreement Fairbanks Natural Gas entered with the U.S. Pipelines and Hazardous Materials Safety Administration in July 2012 over concerns about its Pt. McKenzie liquefaction facility. The federal oversight agency revoked a special permit for the facility. Under the consent agreement, Fairbanks Natural Gas agreed to bring the facility back into compliance by the end of that year.
Second, the RCA wants Fairbanks Natural Gas to explain an apparent contradiction in its service record. At the July 30 hearing in Fairbanks, President Dan Britton said, “We’re also, for the first time in 10 years, having discussions with entities that want to look at increasing the gas they make available to our facility as well as others in the Cook Inlet.”
In its 2004 application to acquire Fairbanks Natural Gas, Pentex outlined expansion plans to accommodate a 10-fold increase in customers. “With a projected 10-fold increase in the size of FNG, and known concerns with Cook Inlet gas supplies, why weren’t gas supply issues mentioned in the 2004 Pentex acquisition application?” the RCA asked.
Third, the RCA wants to know what Fairbanks Natural Gas learned from the 2006 incident, when the utility came within days of being unable to serve its customers.
Finally, the RCA wants Fairbanks Natural Gas to provide more details on its plans to build a North Slope liquefaction plant and associated supply chain into the Interior.
Where will IANGU get money? For the Interior Alaska Natural Gas Utility, the RCA started with logistics.
In its April application for a certificate and a service area, the utility said it expected to get $481,700,000 in state loans from the Sustainable Energy Transmission and Supply fund and the Power Project Fund on a 50-year term at 1 percent interest. The utility also said it expected to get some $50 million in state transmission and permitting grants.
The RCA wanted the Interior Alaska Natural Gas Utility to prove it could get financing on those terms, and to provide a timeline for securing those grants and loans.
The utility said those terms came from its expectations of what Gov. Sean Parnell would propose in his financing package for the project. The actual legislation, Senate Bill 23, provided a much smaller package. As such, the Interior Alaska Natural Gas Utility now expects to get as much as $150 million at 3 percent interest for 30 years, it told the RCA.
The utility believes this and future SETS funding will “permit substantial progress or completion” of its build-out. If not, it would seek grants or bonds to fund the remainder.
From the start, the Interior Alaska Natural Gas Utility has said its municipal status would allow it to seek financing unavailable to a private utility, to the benefit of consumers.
The $50 million in grants also came from expectations about the financial package.
The legislation ultimately allocated $57.5 million for the North Slope liquefaction plant and distribution infrastructure. The utility had unsuccessfully lobbied for more. Now, the lead agent on the project, the Alaska Industrial Development and Export Authority, plans to spend $50 million on the plant, leaving $7.5 million for distribution, the utility said.
But Interior Alaska Natural Gas Utility always intended the bulk of the grant funding, some $39 million, to come in the fourth year of the project, according to the utility.
As such, the shortfall is only about $3.5 million, the utility said.
The utility originally proposed a capital structure funded entirely on debt.
The RCA wanted to know whether the utility would require some financial commitments from customers through a special tax district or from a future private equity partner, and, if not, how it would “deal with issues of credit-worthiness for long-term contracts.”
The utility said it considers state grants to be equity, but said it expects to fund operations on debt until the initial build-out is in place, at which point other revenue models — such as local improvement districts or private equity — “will become even more probable.”
What about supplies? The RCA also wanted to know when the utility expected to have a gas supply contract.
The Interior Alaska Natural Gas Utility said AIDEA is currently negotiating a gas supply contract for the project, but the utility said it has also made arrangements to buy gas under the existing supply contract between Golden Valley Electric Association and BP.
The utility sees no problem securing a supply contract, it said, “given that the [Alaska North Slope] holds the greatest stranded natural gas reserves in North America.”
The bigger problem, according to the utility, is getting an RCA certificate. Without a certificate, the utility said it has been unable to finalize much of its proposed program.
Probing deeper For the second round, the RCA approached its original questions from different angles.
First, the RCA wants to know more about the money question.
At the July 30 hearing, Alaska Energy Authority Project Manager Kirk Warren said any partner in the project would be required to provide “matching capital” because the existing $150 million in bonding authority won’t cover the entire distribution build-out.
The RCA wants to know how the utility will get that “matching capital.”
Second, the RCA wants to know about logistics.
The RCA asked the Interior Alaska Natural Gas Utility to prove its “fitness and ability” to handle the crucial components of the project, including the North Slope gas supply, long-term agreements for liquefied natural gas production, trucking, storage and re-gasification, and natural gas transmission and distribution services, among other things.
| 