IGU Board OKs More Storage-tank Contract Authority for General Manager – With Limits

Sep 19, 2018

The Interior Gas Utility board of directors on Tuesday authorized the utility’s general manager to execute contracts or make changes to them to complete construction of a 5.25-million gallon LNG storage tank now under construction in Fairbanks.

But board members limited General Manager Dan Britton’s request to exercise that authority “regardless of cost,” as he’d requested in a memo outlining his proposal. Director Bill Butler said that’s contrary to his fiduciary oversight responsibility as a board member.

Interior Gas Utility officials say the largest crane in Alaska was used on Sept. 12 to hoist a one-piece, 200,000-pound roof onto the 5.25-million-gallon LNG storage tank under construction in the industrial area on the south side of Fairbanks. The tank is expected to be operational in fall 2019.
Credit Interior Gas Utility

“This is just an open-ended (authority for) any contract or amendment, regardless of the cost,” Butler said. “There’s actually no way I can support language like that.”

Britton says he requested the expanded authority to give him the same latitude he had while he was serving as president of Fairbanks Natural Gas before the IGU bought FNG and other assets formerly owned by the Alaska Industrial Development and Export Authority, or AIDEA. The IGU then hired Britton as the new utility’s general manager.

“This memorandum allows to continue to efficiently move forward,” Britton told the board.

Board members voted to limit the additional authority Britton requested only for project costs listed in a Sept. 13 document, an update on the storage-project budget. They also placed other limits on the authority, including requiring that any reallocation doesn’t push the total authorized budget of the project.

The board considered Britton’s request after a sometimes-heated discussion about more than $10 million in cost overruns the IGU has incurred during construction of the big tank under construction in the industrial area on the south side of Fairbanks. The $52.6 million project is intended to provide more gas storage for the hundreds of customers the utility hopes will convert from wood or oil to gas-fired heating systems.

Britton said in an interview before the meeting that the overruns aren’t unusual for a big construction project.

“Some unforeseen items can come up and differences between what was budget and what the actual costs are coming in at do happen, on occasion,” he said.

Britton says IGU officials first became aware in December that the tank-construction project would exceed the initial estimate of $42 million. That’s when the board first authorized a $47 million contract to build the tank. He says because the estimate was developed before IGU bought FNG and other assets from AIDEA, the nearly $6 million increase is correctly referred to as a “budget adjustment.”

“We were using preliminary numbers that were developed as part of the projects to put forward a forecast of what we thought the capital items would cost,” Britton said. “And when the project was advanced further, more refined numbers were presented.”

In his memo to the board, Britton cited six specific reasons for the $4.2 million cost overrun that he informed the board about last week. They include additional work to ensure soil beneath and around the tank was refrigerated to keep it solidly frozen; deeper excavation of thawed soil on the southern end of the project; increased equipment and material costs, especially for steel; and the requirement that IGU to pay contractor workers prevailing wages at the same level as union workers.

Also Tuesday, the board hear another presentation by officials with Siemens Government Technologies, which has offered to build a natural-gas liquefaction facility in southcentral and provide gas to the IGU in exchange for a long-term gas-sales contract. The project would provide an another source of gas instead of the Pentex plant near Point MacKenzie.  Board members agreed to continue discussions on the proposal.

Editor's note: The IGU recently posted a video showing a time-lapse version of the placement of the dome-shaped roof onto the utility's 5.25 million-gallon storage tank.