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HomeMy WebLinkAboutRes 2014-01 IGU Loan Approval Memorandum To: Board of Directors Alaska Energy Authority FROM: Sara Fisher-Goad Executive Director DATE: April 3, 2014 SUBJECT: Approval of Project Loan for Interior Alaska Natural Gas Utility and Fairbanks Natural Gas The purpose of Resolution No. 2014-01 is to provide approval by the Alaska Energy Authority (AEA) required to meet a contingency the Alaska Legislature placed on an appropriation to the Alaska Industrial Development and Export Authority (AIDEA) for its sustainable energy transmission and supply development (SETS) fund (AS 44.88.660). A fiscal year 2014 appropriation of $125 million to AIDEA’s SETS fund is contingent on AEA approving “a loan of not less than $10,000,000 from the [AIDEA SETS fund] (AS 44.88.660) for the purpose of advancing the use of North Slope natural gas in the Fairbanks area.”1 The Interior Energy Project (IEP) is infrastructure development that meets this definition. The AIDEA Board on April 3, 2014, will be considering loan requests for the Interior Energy Project of up to $8.1 million from Interior Alaska Natural Gas Utility (IGU) and of up to $15 million from Fairbanks Natural Gas LLC (FNG). If the AIDEA Board approves these loans for a combined total of not less than $10 million, then adoption of Resolution No. 2014-01 will constitute AEA approval to satisfy the contingency placed on the legislative appropriation. With the passage of the IEP financing package contained in Chapter 26, SLA 2013, AEA has continued to work in close coordination with AIDEA and project proponents to advance this important infrastructure development. Following the signing of the legislation in Fairbanks on May 29, 2013, AEA focused on producing baseline engineering information regarding infrastructure investment required for LNG storage, re-gas and piped distribution to the high and medium density areas of the Fairbanks North Star Borough (FNSB). During this same time period, AIDEA focused its attention on the formation of the business structure that will construct the North Slope LNG plant. Although AIDEA and AEA focused on separate segments of the overall project infrastructure, communication and coordination between the respective authority’s staff and management continues for the development of the IEP. The timing of the initial availability and volume of the LNG plant supply must be carefully matched with the demand for the distribution system build 1 See sec. 27(i), ch. 14, SLA 2013 Board of Directors Memo for IGU Loan April 3, 2014 Page 2 out. Not coordinating these two elements would risk investment that would be unnecessarily underutilized. This in turn would risk the economic success of the overall enterprise. In order to advance technical knowledge on the total expanse of a natural gas delivery system, AEA staff independently laid out a possible distribution map in order to calculate the miles of new pipe that must be installed to serve the high and medium density areas of the FNSB. This information was shared with FNG and IGU at a technical design charrette held on August 12, 2013 in Fairbanks. AIDEA personnel were involved in this effort to develop a consensus with all stakeholders regarding the required miles of pipe as well as number and type of customers that could be served by the distribution system. The consensus reached at this gathering was later conveyed to the Regulatory Commission of Alaska (RCA) as they deliberated on who should serve the customer base outside FNG’s pre-existing service territory. AEA also worked with AIDEA in the estimation of how quickly customers are likely to hook up to natural gas supply as it becomes available to their properties. A series of focus groups were held with potential natural gas customers to gage their sensitivity to natural gas price and conversion cost. Since residents will not be forced to convert to natural gas, achieving a delivered price that will incent consumers to convert to natural gas is therefore important. Following the December decision by the RCA to grant the expansion service territory to IGU, AEA began turning demand and engineering modeling information over to FNG and IGU to use as they formulated business plans needed for AIDEA financing consideration. AEA has continued to advise AIDEA, FNG and IGU on demand and cost estimates for the distribution build out and the implications this will have for supply demand from the North Slope LNG plant. As a result of its ongoing involvement in the formulation, evaluation and advancement of the IEP project, AEA believes the loans requested by IGU and FNG should be approved to support the development, construction, and installation of, and the start-up costs of operation and maintenance for a natural gas distribution system and affiliated infrastructure in Interior Alaska. AEA staff recommends approval of Resolution 2014-01. ALASKA ENERGY AUTHORITY RESOLUTION NO. 2014-01 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO LOANS OF THE ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY TO ADVANCE THE USE OF NORTH SLOPE GAS IN THE FAIRBANKS AREA WHEREAS, The Alaska Industrial Development and Export Authority (“AIDEA”) is authorized by law (sec. 11, ch. 26, SLA 2013) to provide financing through AIDEA’s sustainable energy transmission and supply (“SETS”) program and fund, established under AS 44.88.650 – 44.88.690, for the development, construction, and installation of, and the start-up costs of operation and maintenance for, a liquefied natural gas production plant and system and affiliated infrastructure on the North Slope and a natural gas distribution system and affiliated infrastructure in Interior Alaska; WHEREAS, Fairbanks Natural Gas LLC (“FNG”) is an Alaska limited liability company that holds a certificate of public convenience and necessity from the Regulatory Commission of Alaska to operate as a public utility distributing natural gas in Fairbanks, Alaska; WHEREAS, Interior Alaska Natural Gas Utility (“IGU”) is an instrumentality of the Fairbanks North Star Borough that holds a certificate of public convenience and necessity from the Regulatory Commission of Alaska to operate as a public utility distributing natural gas in certain areas in and around Fairbanks and North Pole, Alaska; WHEREAS, the Alaska Energy Authority (the “Authority”) has been working with and assisting AIDEA, FNG and IGU in evaluating development plans for the distribution of natural gas in the Fairbanks and North Pole areas; AEA Resolution No. 2014-01 Page 2 WHEREAS, the AIDEA Board has conditionally approved a loan to FNG of up to $15 million from the SETS fund to finance FNG’s planned 2014-2015 expansion of its distribution system in Fairbanks; WHEREAS, the AIDEA Board has conditionally approved a loan to IGU of up to $8.1 million from the SETS fund to finance IGU’s engineering, design, permitting and program management for the initial work to develop of IGU’s natural gas distribution system and affiliated infrastructure in the Fairbanks and North Pole areas,; WHEREAS, the AIDEA Board further conditioned its approval of loans from the SETS fund to FNG and IGU on each of them committing to use North Slope gas in their distribution systems; and WHEREAS, For the State of Alaska’s fiscal year 2014, sec. 27(i), ch. 14, SLA 2013, appropriates $125 million to AIDEA’s SETS fund, contingent on the Authority approving “a loan of not less than $10,000,000 from the Alaska Industrial Development and Export Authority sustainable energy transmission and supply development fund (AS 44.88.660) for the purpose of advancing the use of North Slope natural gas in the Fairbanks area.” NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1. The Authority finds that the loans to FNG and IGU from the SETS fund that the AIDEA Board has contingently approved are not less than $10 million and are for the purpose of advancing the use of North Slope natural gas in the Fairbanks area Section 2. The Authority approves AIDEA’s loans to FNG and IGU from the SETS fund.