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Fairbanks North Star Borough Assembly details municipal gas utility project

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Posted: Friday, October 5, 2012 12:29 am | Updated: 11:33 am, Mon Jan 21, 2013.

FAIRBANKS — As the formation of a municipal natural gas distribution utility is close to becoming a reality, the Fairbanks North Star Borough Assembly got a good look at some of the finer details of the project at its Thursday night work session.

The assembly on Oct. 11 is scheduled to hold a public hearing and vote on the ordinances that officially will create and fund the utility, and it spent Thursday night exploring issues regarding the utility’s purpose, its funding and its role in distributing natural gas to the Interior.

North Pole agreed to hand over authority earlier this week, and Fairbanks City Council will take up the issue Monday.

The utility was proposed by Mayor Luke Hopkins and several community leaders based on the results from a natural gas distribution analysis funded by the state.

Doug Dove, of the public finance consulting firm Bartle Wells Association, told the assembly that a public utility offers a number of advantages to consumers when compared to private industry.

“We really think the municipal entity gives you better control and lower costs,” he said. “There is this myth that the private sector produces the lower costs, and it’s not really shown in a lot of studies. Moving ahead as quickly as possible is the best way to proceed.”

However, a large question looming over the formation of a utility is the issue of who will fund the costly buildout. The utility is slated to get a one-time lump of money from the borough, but the larger capital investment of millions will have to come from somewhere else.

The ordinance before the borough doesn’t allow the utility to seek general obligation bonds, which typically are used to fund projects. Instead, it would need to issue bonds based on its revenue.

Because the borough isn’t on the hook for the utility and its debt, the utility can’t depend on borough’s financial stability when it looks for a loan. Instead, it will have to prove it has a good plan to investors, Dove said.

“I think we need to have a utility that is up and a very good plan that we can show to the ratings agencies, and this is how it’s going to work and here are all the details,” he said. “We can go out and bond based on the plan.”

The bonds would be paid back through the revenue paid by people who choose to hook up to the natural gas distribution system, which is estimated to lower home heating costs by as much as 50 percent compared to oil.

There were fewer details on how exactly the utility would deliver gas; that plan will be determined by a board after the vote. And that raised a number of questions on the assembly, primarily how it will fit in with the current private, albeit limited, natural gas distribution system owned by Fairbanks Natural Gas.

Supporters of the plan say it the utility is largely focused with developing a distribution network to the more rural parts of the borough that aren’t economically served by FNG. Some suggestions have charged the utility with building out the infrastructure but possibly contracting to FNG.

FNG’s President and CEO Dan Britton has opposed the formation of the utility, but when pressed by Presiding Officer Diane Hutchison, he said he could see it working in a facilitating role, helping bring in the capital needed to build out his system.

“I can envision a way we could potentially work together if the real reason behind the utility is to facilitate and an avenue for financing, then I could see a way for us to act together,” he said. “That’s not required to achieve that. The borough could act like a conduit.”

Borough Attorney Rene Broker later corrected him, saying the borough can only accept and transfer grants if it has assumed those powers already. So it couldn’t accept funds for a distribution system, even if the funds were to be handed over to a private entity.

The discussion varied widely from technical details regarding financing to how the project might dovetail with a natural gas trucking plan, like the ones proposed by FNG and Golden Valley Electric Association. Overall, the assembly seemed to fall in favor of the utility, especially under the pressing timeline of the upcoming legislative session, a chance to win critical funding for natural gas trucking projects.

Contact staff writer Matt Buxton at 459-7544 or follow him on Twitter: @FDNMpolitics.

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