Wilken is nominated to IGU board following resignation of Abegg
Prior to the Aug. 9 board meeting of the Interior Gas Utility, board member Frank Abegg notified the board that he was resigning. Subsequently Fairbanks Mayor Jim Matherly nominated Gary Wilken to take Abegg’s place on the board, according to a report in the Fairbanks Daily News Miner. IGU is owned by the Fairbanks North Star Borough. In order to accept the nomination, Wilken has resigned from the board of the Alaska Industrial Development and Export Authority, the Daily News Miner report says.
Wilken, a former state senator and a Fairbanks resident, has been a strong proponent of AIDEA’s Interior Energy Project, a project to bring affordable natural gas to the Fairbanks region, to displace the use of fuel oil and wood burning stoves. As part of the IEP, AIDEA has sold Pentex Natural Gas Co. to IGU, a move that has enabled IGU to combine with Pentex subsidiary Fairbanks Natural Gas to form a single consolidated gas utility for the Fairbanks area. Pentex also owns the Titan liquefied natural gas plant near Point Mackenzie and a trucking operation for transporting LNG to Fairbanks.
With the sale of Pentex to IGU, IGU has taken the driver’s seat in the IEP. AIDEA, on the other hand, is the lender for the project, with financial oversight of major spending decisions.
IGU is building a new LNG storage tank in Fairbanks and must also address the question of how to increase the LNG supply for the city. The other major issue that IGU must contend with is persuading people in Fairbanks to convert their heating systems to the use of natural gas, to increase gas demand in the region to levels that make the new gas supplies viable.
That cost represents $70,000 for each of IGU’s existing customers, Abegg wrote. By comparison, Fairbanks utility Golden Valley Electric Association has assets amounting to $20,000 per customer, he wrote.
The high cost of the Pentex purchase may delay expansion of the gas distribution system in Fairbanks and the expansion of the Titan plant for increased LNG production, Abegg wrote. Also, given the age of the Titan plant and the lack of a convenient alternative LNG source, the supply of LNG to Fairbanks cannot currently be considered firm, he wrote. The gas supply for the project is priced too high to meet the IEP’s target for the cost of gas for Fairbanks consumers. And the projected rate of customer conversions to the use of gas are overly optimistic, thus raising questions over the cost of delivered gas if conversion rates are lower than predicted, Abegg wrote.
IEP financingFinancing for the IEP comes from a $57.5 million state capital appropriation, $125 million in SETS loans from the Sustainable Energy Transmission and Supply Development Fund, and $150 million in AIDEA bonding. IGU’s payment for Pentex came from the SETS loans. Both FNG and IGU have previously used AIDEA SETS loans to finance the first stage of an expansion to the Fairbanks gas distribution network. And IGU is currently using SETS funding to build the new LNG storage facility in Fairbanks.
AIDEA used $15 million of the capital appropriation to pursue an earlier IEP option involving the possibility of LNG production on the North Slope. That option did not prove economically viable but resulted in the development of a North Slope gravel pad, intended for an LNG facility - the pad is designated for transfer to IGU in conjunction with the Pentex purchase. AIDEA has indicated that the remainder of the capital appropriation will be needed in the near future to achieve the IEP goals.
Then, depending on the extent of the eventual expansion of gas supplies in the Fairbanks region, the total cost of the project, supported in part by some additional AIDEA and commercial bonding, could amount to about $346 million, according to an AIDEA report to the state Legislature.
Abegg criticized AIDEA’s management of the IEP, saying that the agency has squandered most of the more than $50 million in state grant funding for the project. The consequence will be the saddling of the IGU and Fairbanks North Star Borough community with more than $320 million in debt, thus placing both the utility and the community in a very precarious financial situation, Abegg wrote.
- ALAN BAILEY
Pruhs responds to Abegg critique of IEPIn an Aug. 15 letter to the Fairbanks Daily News Miner, Dana Pruhs, chair of the board of the Alaska Industrial Development and Export Authority, responded to criticism by Frank Abegg of AIDEA’s management of its Interior Energy Project. Abegg, in a letter of resignation from the board of the Interior Gas Utility, had particularly protested AIDEA’s sale of Pentex Natural Gas Co. to IGU but had also questioned several other aspects of the IEP.
Pruhs said that Abegg’s letter contained numerous inaccuracies.
Abegg claimed that IGU had paid much too high a price for Pentex. But AIDEA had operated on the advice of The Brattle Group and Western Financial Group, who had determined that the purchase price was “within a range of comparable market transactions,” Pruhs wrote. AIDEA’s investment in Pentex had been premised on achieving a disclosed rate of return. And AIDEA had presented the proposal to Interior residents, knowing that the completion of the purchase of Pentex by IGU would be contingent on the passage of resolutions of support by the Fairbanks North Star Borough and the cities of North Pole and Fairbanks, Pruhs wrote. IGU is owned by the local governments.
AIDEA completed its purchase of Pentex in 2015 only after conducting a presentation in Fairbanks, fully disclosing the terms of the deal and the anticipated negotiations for the eventual sale of the business, and after receiving resolutions of support from all three of the local governments involved, Pruhs said.
Pruhs also characterized as incorrect an accusation by Abegg that AIDEA had withheld the transfer of a North Slope pad lease to IGU, despite the fact that the transfer of the pad was an agreed part of the sale of Pentex. AIDEA is currently negotiating with the state, as requested by IGU, to broaden the allowable use of the pad, Pruhs wrote.
Due diligence donePruhs also questioned a statement by Abegg regarding anticipated expenditure by IGU to conduct essential repairs to the Titan liquefied natural gas plant near Point Mackenzie. Before the Pentex purchase IGU conducted due diligence that found nothing that would prevent the purchase proceeding, Pruhs wrote. However during the due diligence the IGU management identified some plant modifications that IGU would conduct after the purchase, he wrote.
Pruhs also challenged statements made by Abegg about the cost of the gas supply for the project being too high, and about AIDEA’s expectations for the rate of conversion to the use of gas by Fairbanks businesses and residents being over optimistic. The IEP had negotiated a relatively short-term gas supply contract, based on a request by IGU: IGU had concurred with the contract terms. And AIDEA had based its gas conversion projection on a conservative estimate that had been determined to be reasonable by a consultant, Pruhs wrote.
Pruhs said that Abegg had also made incorrect statements regarding AIDEA’s handling of project costs. AIDEA and IGU have collaborated to protect project funds and create tools that can assist consumers to convert to the use of natural gas. Construction of a large LNG tank in Fairbanks is proceeding under a budget approved by AIDEA and agreed with IGU. And the current price of natural gas in Fairbanks is about 10 percent lower than that of oil, Pruhs wrote.
- ALAN BAILEY