June 08, 2008
Sunday

The Reverend William Sloan Coffin reminded us back in the 1960s that "it's one thing to say, with the Prophet Amos, let justice roll down like the mighty waters and quite another to work out the irrigation system."

So it is with this special session--it is one thing to say let Alaska's mighty natural gas reserves roll down to markets but quite another to work out the transportation system.

The governor recommends a state license, with accompanying state inducements, for pipeline company TransCanada. ConocoPhillips and BP are advancing a pipeline concept they promise will become a plan. Some Alaskans support an "all-Alaska" option with a pipeline to Valdez and LNG tankers to markets.

None of the three are necessarily mutually exclusive but the only choice we confront this special session is should we issue a license to TransCanada that: 1) commits Alaska to spending $500 million to partially offset TransCanada's costs leading up to a Federal Energy Regulatory Commission (FERC) approval or disapproval of a gasline; 2) commits Alaska to other non-monetary inducements given exclusively to the TransCanada project; and 3) obligates the state to treble damages if we don't live up to points one or two.

The thousands of elements surrounding this choice are complex and sprinkled liberally with weasel words. Here's a very small sample of some of the opaque data points with qualifiers underlined:

"various (and undefined) methods to meet commitments under the Kyoto Accord" (Canada is a signatory to the global warming accord);

"bitumen upgrades to capacity development . . . the capacity will likely be developed";

"exposure to natural gas fuel type is mostly cogeneration which is mostly high efficiency and offsets market exposure"; and

"new gas-on-gas competition (that) may result in modifications to long-term historical gas distribution".

So, a "go" or "no go" decision for TransCanada is difficult. Having said that, right now I'm inclined to "go" because I do believe the economics are there for a project, even with large construction cost overruns. I also believe giving TransCanada a license keeps the pressure on ConocoPhillips and BP to turn their gasline concept into a real plan. If TransCanada is not in the picture, continued warehousing of Alaska's gas once again becomes both an option, and leverage point for ANS producers.

But my inclination to "go" has a great big caveat.

The TransCanada application for a state license, made under the terms of the Alaska Gasline Inducement Act (AGIA) passed last year by the legislature, suggests they want more from the state than the AGIA law provides. In addition to the $500 million and other inducements (and the treble damages if the state doesn't deliver), TransCanada suggests the state:

seek an agreement from ANS producers on fiscal terms (state tax certainty over time?);
help TransCanada lobby for additional federal assistance (use federal loan guarantees for cost overruns?);
use our sovereign power to induce ANS producers to commit gas to TransCanada (carrots like more upstream tax breaks or sticks like a gas reserve tax?); and
"seriously" consider the feasibility of significant state resources to underwrite alternative gas line financing (a state equity position?).

For me, these new suggestions have a big, big, 'Uffda' Factor. In short, does TransCanada's request for this additional state aid, if not explicitly denied, expand the list of state commitments we promised under AGIA--the document under which TransCanada made its application for a license?

If so, I'm far less likely to approve the TransCanada license. They applied for the state license under a specific set of concessions from the state. Other potential AGIA applicants did not have an expectation they could get more than the state promised under AGIA by renegotiating after their application was approved.

My 'Uffda' concerns go away if TransCanada baldly states in their testimony that none of their additional requests, if ignored by the state, relieve them from their obligation to move forward. If TransCanada won't say that in their testimony, the legislature must baldly say something like: "the state will work with TransCanada to get a pipeline but legislative approval of the license they seek, and the company's acceptance of the license, does not commit the state to any assistance not specified explicitly in the AGIA law. Further, the state is not liable for any damages, treble or otherwise, if we don't now or in the future accede to additional TransCanada requests."

Without either a disavowal by TransCanada or straightforward clarifying language by the legislature, approval of the TransCanada application will create a playground for lawyers. That adds legal risk to the state and potential delays to a gasline. (Update: the playground for lawyers shrank late this morning. I asked TransCanada if they agree with the premise that only state requirements promised in the AGIA legislation are required from the state and that none of the expectations articulated by TransCanada outside the AGIA recipe are conditions of the license. TransCanada answered "yes".)

About: Sen. Kim Elton is a member of the Alaska Legislature representing Juneau.

Received June 06, 2008 - Published June 08, 2008

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