By Dermot Cole, Alaska Dispatch

FAIRBANKS — The long-awaited transition of local energy supplies away from dependence on heating oil advanced Thursday with state approval of a $29 million financing package to put pipes in the ground this summer in North Pole. Depending upon a gas supply arrangement — potentially from Cook Inlet — the system could be heating Fairbanks-area homes and businesses by mid-2016.

“It’s a huge step in the right direction,” said Steve Haagenson, a board member of the municipally owned Interior Gas Utility and former CEO of the local electric utility. “No matter where we get our gas from, we have to have pipes in the ground. This will be a critical year for us as it’s going to be our first time in the field. We will be building this summer.”

The Alaska Industrial Development and Export Authority unanimously approved a low-interest loan Thursday that will help finance the construction of the first phase of the system. The high-density plastic pipe is already on order and more than 70 miles of pipe are expected to be installed this summer, putting more than 1,400 single-family homes and 140 multifamily and commercial buildings within reach of natural gas.

The 50-year loan by the state-owned corporation [2] calls for a two-year line of credit followed by 48 years at 1 percent. Interest payments are to be deferred for the first eight years. Haagenson said the AIDEA package is essential to the effort to provide a new fuel source in the Fairbanks area and that this is a turning point in the process of reducing oil dependence. AIDEA had approved an earlier loan of $8 million for detailed design work and the pipe purchase.

Board members of the utility have said that despite the recent drop in oil prices, they expect an increase over the long term, drawing millions from the local economy. The switch to gas will also help reduce particulate pollution, which exceeds national health standards many times during the winter.

In addition to construction in North Pole, the loan will help pay for continued design, right of way and permitting on an expanded system that is to grow toward Fairbanks, about 14 miles to the northwest. The municipal utility is also reviewing plans for storage tanks to help get the system in operation, perhaps in 2016.

The AIDEA loan is not directly related to the other big Fairbanks energy project in front of AIDEA, the proposed $52.5 million purchase of Fairbanks Natural Gas. [3]FNG serves the central core of the Fairbanks area and the municipal utility came about in 2012 largely because of frustration over the private company’s resistance to expand beyond its base of 1,100 customers.

The purchase, among other elements, would include a liquefaction plant in Cook Inlet that boosters of the plan in Fairbanks say could be expanded to handle greater demand. AIDEA said it plans a thorough review of the purchase plan.

It has been a dream in Fairbanks for many decades that development of a natural gas system would provide a means of lowering the cost of electricity and home heating, both of which are far higher than in Southcentral Alaska. In 2013, the Legislature approved plans for AIDEA to assist in the development of natural gas infrastructure.

A proposed North Slope gas treatment plant came in at a cost significantly higher than expected and was canceled, but a renewed interest in shipping Cook Inlet gas north to Fairbanks has gained momentum in the past few months.