Afraid of pipe dreams: Lawmakers consider asking for confidential briefing

Posted: Tuesday, February 08, 2011

Alaska legislators say they're frustrated with lack of progress by TransCanada Corp. in securing shipping contracts for a planned $40 billion-plus Alaska natural gas pipeline, and some are arguing for terminating the state's contract with the pipeline company, under which Alaska is paying a $500 million subsidy to the project.

TransCanada acknowledged that it missed an internal target it set for having precedent agreements signed with potential shippers, but said negotiations are continuing and that the company is making good progress. Talks are under way with potential shippers who submitted bids for capacity during an initial open season TransCanada held last summer.

"We now know what the issues are, and we're working to resolve them," TransCanada Vice President Tony Palmer said in an interview.

That isn't enough for leaders of Alaska's Legislature, however.

"There's an enormous amount of frustration over this in the Legislature and real concern over progress," Senate President Gary Stevens, R- Kodiak, said in a briefing Jan. 25. "There's a lot of inexpensive gas in the Lower 48 states and we have real concerns over our continued funding of TransCanada's expenses and the level of our commitment."

Alaska Gov. Sean Parnell said he still supports the TransCanada contract, signed under the Alaska Gasline Inducement Act. Legislators should be patient and give the company more time, Parnell said.

But House Speaker Mike Chenault, R-Kenai, said legislators are getting antsy over the amount of time this is taking.

"We might ask if TransCanada could establish a data room or some place we could see information and be given a briefing, in confidence, on the project," he said. "There are a lot of legislators concerned about how long we can drag this out."

Chenault said legislators also are concerned about progress being made by Denali, a rival group to TransCanada backed by BP and ConocoPhillips, but that's a different situation because there is no state contract or subsidy with Denali.

TransCanada's Palmer said he doesn't think a confidential briefing for legislators is workable.

"We have very tight confidentiality agreements with our potential shippers. We don't believe we can get into a position of meeting with a group of legislators who have signed confidentiality agreements and break out the information," Palmer said.

Palmer said TransCanada is only a month beyond its internal deadline but that shouldn't be a concern for a project that won't be up and running until the end of the decade and that will operate for 25 or 50 years beyond that.

"This does not affect our schedule or our commitment to make an application to the Federal Energy Regulatory Commission in October 2012," Palmer said.

Legislative leaders said they are not only concerned about the state's subsidy, which now requires Alaska to pay 90 percent of TransCanada's expenses -- prior to the open season the state paid only 50 percent -- but that there are also worries about a treble damages contract provision that allows TransCanada to make a claim if the state moves to support another gas project.

The treble damages provision can trigger if the state supports another project that moves more than 500 million cubic feet of gas per day. Alaska is now studying a smaller, 24-inch pipeline from the North Slope it might build to southern Alaska to serve utilities as a fallback in case the 48-inch pipeline to Alberta is delayed.

State officials have said that under the AGIA contract, this pipeline, even if built by the state, would be subject to the 500 million cubic feet per day restriction, which could limit its chances to serve large industrial customers in southern Alaska.

Palmer said the restriction would not apply to a 24-inch spur line built to Southcentral Alaska off the 48-inch pipeline in Interior Alaska.

"They would be one of our customers," he said.

The contract with TransCanada, under the Alaska Gas Inducement Act, or AGIA, was one of former Gov. Sarah Palin's major accomplishments in her two years as Alaska's governor.

Sen. Bert Stedman, R-Sitka, co-chair of the Senate Finance Committee, said the state has reimbursed TransCanada already for some expenses under the AGIA contract and will make further reimbursements this year, and that there will be continuing obligations.

"It's time to start the discussion about the contract," he said. "I think it's useless for us to be laying out hundreds of millions of dollars to pay for something that may not be going anywhere in view of the U.S. shale gas resource. We're now at the 90 percent reimbursement rate under our contract and that's a real concern, because this is basically our money paying for this now. I may want to see us unshackled from this contract so we can move forward," and consider other options.

"I'm not wanting to turn the switch on this right now, but I will by the middle of the summer. I'd want to terminate the contract so we can get out from under the treble damages provision," Stedman said.

Chenault said there are also provisions in the contract where it can be ended without a treble damages claim if the state and TransCanada agree the project is uneconomic.



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