Natural Gas Distribution System for the Unserved Portions of the FNSB

A Community Plan

Fairbanks City Council 6/10/13

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IGU - VisionDeliver Low Cost Gas: A non-profit business delivering gas

Borough-wide at $15/mmBTU, a cost competitive with wood to improve area-wide PM 2.5 air quality levels.

As Soon As Possible: Complete the gas distribution system within the next 5 to10 years

To As Many As Possible: Gas service to the high and medium density areas surrounding Fairbanks (to 12,000+ homes and businesses)

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Governor’s Finance Package

SB 23

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City of Fairbanks Ordinance No. 5895

Page 2: “b. Direct competition in an area covered by a Certificate of Public Convenience & Necessity by the Regulatory Commission of Alaska will not be initiated without approval of the Fairbanks North Star Borough, the City of Fairbanks and the City of North Pole by separate resolutions. In the event such authority is given, IANGU is only authorized to operate via a contract with a private entity unless this option is not available.”

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IGU & FNG CPCN Timeline

IGU - RCA Presentation

FNG RCA Filing

IGU RCA Filing

RCA Accepted Applications

RCA Decision

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

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RCA Applications Utility Business

Profile IGU FNG

Business ProfileMunicipal Utility, tax-exempt,

owned by FNSB, since 11/2012 (6 months)

Private Company, owned by Pentax LLC, in business

since 1998 (14 years)

Business Focus (Mission)Provide low cost gas to FNSB

residents and businesses ASAP

Maximize return on business investment;

Focused on commercial & industrial customers

Business Assets (2013) $0 $29 Million

Planned Investment (by 2021) $472 Million (State Grant & AIDEA Loan)

$100 Million ($21M Equity with $14M Conventional &

$66M AIDEA loans)

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RCA Applications Gas Supply &

Distribution IGU FNG

LNG Supply ANS - AIDEA LNG Plant ANS - AIDEA LNG Plant & Cook Inlet - LNG Plant

Existing Gas Distribution Network None at present 70 miles gas distribution

lines - Fairbanks Area

Proposed Distribution System Expansion

Over 1,000 miles of buried transmission, distribution and service lines plus LNG Storage

Buried transmission lines (from FNG Facility to

North Pole and to Johansen/Steese Hwy)

plus LNG Storage

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RCA Applications Natural Gas Customers IGU FNG

Year 2016 / 2021 2016 / 2021

- New Residential Customers 1,324 / 12,839 1,926 / 8,549

- New Commercial Customers 79 / 527 53 / 476

- New Industrial Customers 0 / 0 1 / 1

Total Customers 1,403 / 13,316 1,980 / 9,026

Financial Investment ($ Million)LNG Storage Tanks $ 60 / $120 $ 20 / $20

Distribution System $208 / $352 $27 / $80

Total Investment $268 / $472 $ 47 / $100

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RCA Applications Natural Gas Retail Price IGU FNG

Natural Gas Price (today) n/a $23.90/mcf

Proposed Gas Price (2016) $15.45/mcf (Postage Stamp Rate)

$15.90/mcf (Residential & Commercial)

$15.43/mcf (Industrial)

Proposed Gas Price (2021) $15.45/mcf (Postage Stamp Rate)

$13.08/mcf (Residential & Commercial)

$12.69/mcf (Industrial)

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RCA Applications Required Revenue

(2021)IGU FNG

Residential/Commercial 3.4 Bcf/Year 1.4 Bcf/Year

Industrial -0- 3.0 Bcf/Year

Total Gas Sales - Bcf/Year 3.4 Bcf/Year 4.4 Bcf/Year

O & M Expenses $ 38.8 M $ 49.2 M

Depreciation $ 8.5 M $ 2.0 M

Return on Rate Base $ 3.8 M $ 4.1 M

State & Federal Taxes $ 0 M $ 1.5 M

Total Annual Cost $ 51.1 M $ 56.8 M

Average Gas Cost ($/mcf) $ 15.00/mcf $ 12.90/mcf

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FNG’s Comments on IGU Application

1. IGU does not have a natural gas supply contract

2. IGU’s financing based on 50 year loans at 1% interest is not possible (AIDEA requires 30 year loans at higher interest (3% tax-free to 4.5% taxable bonds)

3. IGU’s residential gas demand is too high (IGU @ 245 mcf/year compared to FNG @ 125 mcf/year)

4. lGU’s retail natural gas delivery price will be higher than FNG’s due to higher cost AIDEA financing and lower residential customer gas demand

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IGU’s Comments on FNG Application

1. Thousands of residents in FNG’s existing service area have been waiting over a decade for gas service

2. FNG’s 3 Bcf/year gas sales to a North Pole industrial customer -no commitment provided for this gas demand or quantity

3. FNG investing a fraction of what is needed for LNG storage and distribution system expansion necessary to serve new area

4. FNG is diverting financial resources needed to provide adequate service within its existing service area in an attempt to foreclose IGU from serving the surrounding FNSB community

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AIDEA Report vs. IGU & FNG Plans

IGU AIDEA FNG Service Area FNSB FBKS + FNSB FNSB Customers (by 2021) 13,316 17,000+ 9,026

Gas Distribution System $352 MM $170 MM $ 80 MM

Customer Service Lines Included $ 35 MM Included

LNG Storage Tanks $120 MM $ 58 MM $ 20 MM

LNG Plant Addition (2019) N/A $ 83 MM ?

LNG Trucks Needed 25 80 ?

Total Estimated Cost $472+ MM $346+ MM $100+ MM

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IGU – Plans for this YearReconcile AIDEA and IGU Cost Estimates

Work with AIDEA/AEA - Secure gas distribution system financing (Grant & Loan)

Establish RCA Service Territory for the Unserved Area

Create Public/Private Partnership – Operator Agreement

Work with AIDEA – Secure LNG Supply

Work with GVEA - LNG Trucking & Storage

Determine Engineering, Permitting and Right-of-Ways for Construction of Phase I (North Pole area)

IGU Issues MatrixConversions Market Sales LNG

Storage

Cost Estimate

Operator Interest Rate Trucking

Delivered CostMgmt

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Outstanding Issues/Summary

MissionCostEfficiencyExperienceTimingImpact on Financing“Competing”Expectations for any gas utility

COF Focus

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