The Borough Assembly has delayed a vote on whether to approve terms of a $7.5 million line of credit for the Interior Gas Utility.
The utility asked for the loan to continue work this year on expanding gas storage capacity while it seeks to borrow another $50 million to $75 million through revenue bonds.
The postponement came after questions were raised about the utility’s ability to repay the loan.
"I am not 100% convinced that you will get the money back. I am not 100% convinced that you won't," Pamela Throop, chairwoman of the IGU board of directors, told the assembly.
Throop said bids for capital projects are coming in higher than anticipated and that the IGU board has decisions to make that will impact whether the effort to expand natural gas availability in the borough will work.
Repayment of the line of credit is planned to come from revenue bonds, which have yet to be approved by the Alaska Industrial Development and Export Authority, the IGU's financier.
The Fairbanks North Star Borough owns the gas utility, but it was set up to protect area property taxpayers from financial liability.
Money for the line of credit came from a court settlement and was set aside by the assembly in 2014 to keep construction of an expanded gas pipeline network on schedule in the event loan payments from AIDEA were delayed or slow to come.
In this case, the AIDEA money — about $125 million in low interest loans — has nearly run out as the IGU deals with higher-than-anticipated commodity costs, according to General Manager Dan Britton.
"We don't want to delay our projects while we move forward with bond financing," he told the assembly.
Britton requested the line of credit from Borough Mayor Bryce Ward earlier this month, Ward said at a Wednesday news conference.
The mayor has the authority to grant the loan, but the borough’s chief financial officer must determine that each draw won’t hurt borough finances.
An ordinance that came before the assembly Thursday, updating terms of the loan, stated that fiscal uncertainty on the state level combined with a $7.5 million draw on funds "may create negative impacts to borough operations."
The ordinance also stated that the IGU may have difficulty paying back the loan "if AIDEA does not issue revenue bonds so that IGU can finance its capital program."
The IGU must establish itself as an investment-grade utility before issuing revenue bonds. That has reportedly not happened.
The assembly hesitated to approve the loan after testimony that cast doubt on the gas expansion project.
At least two IGU board members joined Britton at the assembly meeting where a long discussion of the utility unfolded.
Almost everyone agreed they want to see the IGU get on a sustainable path.
Longtime IGU critics Merrick Peirce and Mike Prax testified.
Prax compared the IGU with a venture capital scheme.
Peirce expressed doubts that residents will convert to natural gas because the cost will be too high as the utility pays off its debt load.
"What would you suggest we do at this point?" Ward asked, saying that a $58.4 million gas storage tank in South Fairbanks is near completion and people, particularly North Pole residents dealing with air quality problems, are waiting to be hooked up to gas, one of the cleanest-burning forms of home heat.
Peirce said independent experts need to evaluate the project. He criticized cost overruns blaming "competence of management."
"We've got to leverage this project to something that can work," he said.
"Do you honestly think the state is going to give us any more money?" Ward asked.
Peirce said the state is to blame for the problems because AIDEA paid too much for Fairbanks Natural Gas, a private utility that is being merged with the public utility.
"Call it what it really is," Peirce said about the $7.5 million line of credit. "It's just a grant."
Attorney Michael Walleri also testified, saying he is a fan of the energy project but has concerns. One of them is the tense relationship between leaders of the IGU and those of AIDEA.
"That relationship has to be repaired before $1 of the borough's money goes to the IGU," he said.
Walleri called on the assembly to reject the loan and for the IGU to pursue a different business plan.
Assemblyman Christopher Quist said he is sympathetic to the project but that he has reservations about the loan.
Borough Assemblyman Andrew Gray agreed.
"Something about this is making me very uncomfortable," he said.
Ward said at the Wednesday news conference that he is concerned about the cost overruns at the IGU but that the project has passed the point of no return.
Britton said that under the terms of its financing with AIDEA, the state loans do not have to be paid back for 15 to 20 years, which would allow the utility to repay the borough first.
The IGU has previously borrowed from the borough line of credit, repaying the $500,000 in 2017.
Ward said the assembly ought to look at the loan as an investment in the community.
The ordinance was postponed until June 13 in a 6-3 vote. The three who voted "no" on delaying action were Assemblywomen Liz Lyke and Angela Major, and Assemblyman Matt Cooper, presiding officer of the assembly.
Contact staff writer Amanda Bohman at 459-7587. Follow her on Twitter: @FDNMborough.