IGU Board Approves Continued Confidential Negotiations for New Natural Gas Supplier

Apr 9, 2018

Updated: The Interior Gas Utility board of directors this morning unanimously approved an agreement to further explore an offer by a Cook Inlet natural gas-supplier. IGU’s top executive says the company has proposed to provide gas to the utility at a better price with a longer-term contract than the present arrangement with Anchorage-based Hilcorp. But that’s about all the utility’s officials would say about the proposal.


IGU General Manager Jomo Stewart says the board of directors decided Thursday to meet this morning to consider authorizing him to move ahead on negotiations for what appears to be a sweet offer that would enable the utility to buy natural gas at a lower price than the $7.72 per million cubic feet it’s now paying Hilcorp Alaska.

Work continues on a 5.25 million gallon LNG storage tank the Pentex is building off Tria Road in Fairbanks' industrial area. The $48 million tank, to be completed next year, will be nearly 100 feet in diameter. It's part of the system that the Interior Gas Utility is building to boost availability of natural gas as the utility expands its distribution system throughout the Fairbanks-North Pole area.
Credit Pentex Natural Gas Co.

“This is appreciably less than that,” he said in an interview Thursday.

Stewart couldn’t say exactly for what price the company was offering to sell the natural gas to the IGU. Nor could he say exactly how long the company was proposing to sell the gas. Although he said it would be for a longer period of time than the three-year deal with Hilcorp that the IGU board recently approved.

“It’s also a much longer contract than the Hilcorp contract,” he said.

Upon further query, Stewart said the offer would span longer than a decade. But he says that’s about all he can disclose about the offer that’s outlined in the binding term sheet the IGU board will consider in this morning’s meeting. Because of a confidentiality clause in the document.

“We’re not trying to be sneaky, but we are trying to be sensitive to the desires of the seller,” he said.

Stewart says negotiations with the seller have been going on for about a year now. And he says it’s now important that the board commit to the basic terms that have been worked out so far.

“It’s now ripe for consideration,” he said.

IGU board Chairwoman Pam Throop says based on her 40-plus years of work in the real estate industry, it’s common practice to include a confidentiality clause in preliminary agreements like a binding term sheet. The documents lay out the terms both sides generally agree to as they continue negotiating toward a contract.

From left: Jomo Stewart, IGU general manager; Pam Throop, IGU board chair; Patrice Lee, board member.
Credit KUAC file photos

“Now there will be subtleties and nuances that come up in a contract (negotiation),” she said, “and if we can’t work through those, then it wouldn’t be binding. But, for those big terms that are in there, those are binding terms.”

Throop agrees the company’s proposed price is attractive. But she says the IGU board will proceed cautiously, because this is the first time it’s negotiated a natural gas contract. The present arrangement with Hilcorp was originally negotiated by officials with Pentex, the parent company of Fairbanks Natural Gas or FNG. In December, the IGU bought the Texas-based company and subsidiaries, including FNG, from the Alaska Industrial Development and Export Authority.

“It’s, we think, pretty aggressive pricing,” she said in an interview Friday. “At this point, we’re pretty happy with it. We don’t see anything that’s even close to it (the price), let along better.”

But board member Patrice Lee says she dislikes the confidentiality clause.

“We owe it to the public to be transparent and to continue to stick to the goals of affordable energy, affordable gas, and the goal of cleaning up our air,” she said Friday.

Lee, like Throop and Stewart, declined to identify the company and its rate sheet proposals, citing penalties for violating the confidentiality clause that include removal from the board. But Lee said Friday she’s closely scrutinizing the document in preparation of Monday’s meeting.

'What we're doing with IGU is we're setting up a legacy utility and legacy contract, going decades into the future.'
- Pam Throop
board chair

“The Interior Gas Utility owes it to the public to do the best due diligence, the most complete due diligence it possibly can on any of the offers of proposals we receive,” she said.

Throop agrees that the board needs to carefully consider this and any big agreement that comes before it. And she emphasizes that the IGU is just beginning to gear up to meet its goal of distributing natural gas widely throughout the Fairbanks area by building a huge storage tank in the city’s industrial area and extending its pipeline network to North Pole and elsewhere.

“What we’re doing with IGU is we’re setting up a legacy utility and legacy contract, going decades into the future – not just for us, but for the next couple of generations.”