Interior Gas Utility needs to find a way to make natural gas fuel of choice

With solid backing from the Fairbanks City Council Monday, former Sen. Gary Wilken has been confirmed as the newest member of the Interior Gas Utility board.

I had written here against his appointment, but now that the council has made its decision, there is no point in rehashing arguments about procedure, which had nothing to do with his character or ability to do the volunteer job. 

Wilken resigned from the Alaska Industrial Development and Export Authority Board, a state entity, clearing the way for Mayor Jim Matherly to appoint him to the IGU board. AIDEA closed a deal to sell the utility to IGU in June. 

I said that going from the seller to the buyer created a conflict of interest, given the range of issues with AIDEA raised in the resignation letter of IGU board member Frank Abegg, a veteran Fairbanks engineer.

Matherly and the city council said there is no conflict, they trust Wilken to do the right thing and it's time to move on. Wilken said there is no way he would favor the interests of a state agency over those of his hometown. 

I respect Wilken, who has a long track record of public service in Fairbanks, and I hope that he and the other members of the IGU board can find a way to make this utility a success. The focus now should be on building a sustainable enterprise.

Not everyone will agree, but the positive thing to come out of this is a heightened awareness of the financial challenges that lie ahead and the need for greater scrutiny of the undertaking.

At an Aug. 7 IGU board meeting, when Abegg's resignation was accepted, fellow board member Steve Haagenson, former GVEA president, said that many of the things in the resignation letter could not be talked about until recently because of nondisclosure requirements.

"I'm glad he put it out because it needs to be talked about. I think it needs to get resolved somehow and the public needs to know the things which this board has been handed," Haagenson said of Abegg's letter.

At its heart, the controversy generated by the resignation of Abegg from the IGU board was really about whether the utility is likely to be financially viable. Abegg says the obstacles are too great, but the majority of the IGU board and the AIDEA disagree.

AIDEA submitted an 11-page response to the city council Monday answering key points raised by Abegg, but it's not as if a final verdict has been rendered.

There will not be an overnight answer about who is right. The future is uncertain and much depends upon energy prices and the individual choices of thousands of people in years to come.

Higher oil prices would improve the economic outlook for the utility, while lower prices would make it more difficult to get customers to put up or borrow the thousands needed to convert to natural gas. 

Dana Pruhs, the chairman of the AIDEA board, says the state agency is committed to keep working with IGU. Pressure either from within AIDEA or without needs to continue.

There is already a price advantage for IGU with gas, says Pruhs, the brother of Fairbanks City Councilman David Pruhs.

"The price today is approximately ten percent lower than delivered fuel oil and the cost will continue to decrease as new customers are welcomed and added," he wrote.

Abegg charges that AIDEA has exacted terms that are a “violation of fiduciary duty to the Fairbanks community," creating financial risks for the borough.

AIDEA and the IGU board majority who defend the terms of the deal say there is nothing to worry about because it is "non-recourse debt," meaning the borough would not be on the hook for $300 million in case it flops.

"If  IGU fails, AIDEA ends up with it and I promise you they don't want it. They're going to make sure this works. We'll never, ever get another opportunity like this. Never," said Andy Warwick, a Fairbanks CPA who spoke in favor of Wilken's appointment.

Abegg said the ability to expand service along Badger Road and other areas is in question because the utility won't be able to afford it. We'll see.

Jim Dodson, president of the Fairbanks Economic Development Corp., said if he's heard Wilken say it once, he's heard him say 100 times that "we cannot quit this project until we serve every person living along Badger Road and the rest of Fairbanks community."

 "He pushed that forward as a member of AIDEA and he will push it forward as a member of IGU," Dodson said.

Wilken knows his way around state and local government and we can be assured that he will never give up on this project. 

That's good because there is a lot at stake for the community, both in terms of air quality and future economic development. The utility needs to build trust with the public, demonstrate the advantages of natural gas and expand its reach in the years ahead.