Fairbanks utility merger needs RCA approval

Alan Bailey

Petroleum News

The Alaska Industrial Development and Export Authority and the Interior Gas Utility have asked the Regulatory Commission of Alaska for expedited approval of the purchase of Fairbanks Natural Gas by the Interior Gas Utility, to form a single, consolidated gas utility for Fairbanks and its surrounds. The request comes as part of the Interior Energy Project, a project to bring affordable, clean energy to the Fairbanks region, with AIDEA funding assistance.

AIDEA owns Pentex Natural Gas Co., the owner of FNG. The idea is that IGU will purchase Pentex, which also owns the Titan liquefied natural gas plant near Point Mackenzie on Cook Inlet, and a trucking operation for shipping LNG to Fairbanks. AIDEA and IGU have signed purchase and financing agreements for the Pentex sale, with a requirement to close the deal by May 31. RCA approval of the utility consolidation is required before the deal can close. IGU operates under the terms of an RCA certificate, although the utility is a public corporation wholly owned by the Fairbanks North Star Borough. FNG also has a certificate issued by the RCA.

Key objectives of the utility consolidation are the avoidance of duplication of the gas infrastructure and the development of a fully integrated gas distribution system in and around Fairbanks. Construction of an expanded LNG storage facility in Fairbanks began in December.

As publicly owned utilities, neither FNG nor IGU is subject to economic regulation by the RCA - currently AIDEA oversees FNG while FNSB oversees IGU.

IGU plans to purchase Pentex using Interior Energy Project financing approved by the state Legislature and available through AIDEA. AIDEA will use the funds that it receives from the deal to restore money to the revolving fund that it used for its purchase of Pentex in 2015. The money restored to the fund will cover the original purchase cost of Pentex, plus a return on AIDEA’s investment in the company. The IEP financing that IGU will use involves 50-year loans, interest free for 15 years and with a subsequent interest rate of 0.25 percent.

- ALAN BAILEY