FAIRBANKS ---The Regulatory Commission of Alaska granted a certificate to provide natural gas service to the suburban Fairbanks area to a municipal utility, saying it had a better plan than a competing offer from a private company.
The private firm, Fairbanks Natural Gas (FNG), "failed to demonstrate a viable build-out plan for the proposed expanded service area," the RCA said. "The failure to make the threshold showing in this area results in our denial of FNG's application."
Under this ruling, the private company, owned by Minnesota investors, would continue to serve the main part of the city, where it has about 1,100 customers, while the new municipal utility would serve the surrounding area. The municipal utility board includes several experienced utility officials from the Interior.
The key drawback cited by the RCA in rejecting the FNG plan was that the private company had counted on getting the Golden Valley Electric Association as its anchor customer in the North Pole area starting in 2015 for 3 billion cubic feet of gas a year. GVEA said it had no agreement with FNG to purchase gas and did not need that much gas.
"We find that GVEA has no need for 3 bcf at its power plant, particularly beyond 2015," the RCA said.
The RCA said there is a "significant customer base for FNG to expand service within its existing certificated area, and we expect FNG to do so as gas becomes available."
The RCA said the Interior Gas Utility needs to maintain a minimum five-day supply of natural gas for its customers. While supporters of the IGU have said they want the utility to be subject to rate regulation by the state, the agency said the borough assembly should approve an ordinance directing that to happen if that's what is desired.
The state agency said that the IGU is owned by the borough, accountable to the residents of the Fairbanks North Star Borough, and that there is no reason to attach further conditions to the certificate than those the agency made in its presentations to the RCA.
"The citizens, voters and media of the community will participate in holding its leaders accountable," the RCA said.
The regulatory group said the ability of the municipal entity to fund the utility with loans, bonds and taxes demonstrates sufficient financial backing to proceed.
The commission was faced with deciding whether a private company or municipal utility will have the franchise to create a natural gas distribution system in much of the community beyond the city center.
A year ago the three local governments created a municipal utility with the goal of assembling an organization to accelerate the development of a natural gas distribution system in the suburban areas beyond the current FNG boundaries. Frustration over the rates charged by FNG and its decision not to expand its system to serve more customers within its existing territory led to the creation of the municipal entity.
After the municipal group formed, FNG applied to serve the area beyond its existing territory, which meant the RCA had to pick one or the other.
In an extended hearing in September in Anchorage and also in numerous documents submitted to the RCA, the two competitors had harsh words for each other.
The municipal utility said that FNG was concerned only with maximizing profits and not expanding its service to consumers. The FNG profits per 1,000 cubic feet of gas exceed the cost of 1,000 cubic feet of gas to a consumer in Anchorage, the municipal utility said.
FNG said the municipal utility plans were unrealistic and destined to fail. It said it had not expanded its customer base because of a shortage of natural gas in Cook Inlet. The IGU said the company declined to invest in storage facilities, which would have allowed it to expand its operations, but reduced profits.
In recent months, Fairbanks Natural Gas placed different parts of its business into separate limited liability companies, an action that the Interior Gas Utility said was aimed at avoiding rate regulation. After years of being allowed to charge whatever the market would stand, the utility and the state entered into a process that lead to regulated rates after a lengthy review.
A decision by the RCA on which company will get the certificate for suburban Fairbanks had been due by Oct. 2, but the parties agreed to a delay until Dec. 20.
Dermot Cole can be reached at dermot(at)alaskadispatch.com. Follow him on Twitter at @DermotMCole.