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Senate Resources unveils version of gas line bill

Posted: February 23, 2014 - 1:07am

JUNEAU — The Senate Resources Committee on Friday unveiled a version of a gas pipeline bill that largely remained true to what Gov. Sean Parnell proposed, with some clarifications.

The draft said confidential information related to contract negotiations shall be shared with the Legislature in executive session or under confidentiality agreements. The original version said “may.” Chairwoman Cathy Giessel, R-Anchorage, said she wanted to make sure lawmakers were involved.

The draft also said the fixed royalty rate for gas cannot fall below 12.5 percent, and it incorporated an idea proposed by Sen. Lesil McGuire, R-Anchorage, that a plan be developed that would recommend how Alaskans could invest in the pipeline with their Permanent Fund dividends.

The committee rejected four proposed amendments from the panel’s lone minority member, Sen. Hollis French, D-Anchorage. One of his proposals said negotiated project contracts could not include provisions relating to oil taxes; another called for a competitive bidding process before TransCanada Corp. could be involved.

Giessel said she planned to hold the bill until Monday morning, to give members time to review the bill again.

State officials have signed a commercial agreement with TransCanada, the Alaska Gasline Development Corp., or AGDC, and the North Slope’s major players, BP PLC, ConocoPhillips and Exxon Mobil Corp., spelling out terms for pursuing a major liquefied natural gas project capable of overseas exports. The agreement anticipates a state stake of about 20 to 25 percent. The draft rewrite of the bill also includes intent language that draws on elements in the commercial agreement.

The state has separately signed an agreement with TransCanada in which the company would carry Alaska’s interest in the pipeline and gas treatment plant. While the state would have an equity buyback option, the arrangement is seen as a way for the state to not have to shoulder as much in the way of upfront costs as it would without TransCanada in the picture. The agreement also would serve as a transition away from the Alaska Gasline Inducement Act, the law under which TransCanada has been pursuing a pipeline for years with Exxon Mobil but which Parnell has said no longer fits with the current situation, which features a change in project type and players.

The agreements are subject to passage of enabling legislation deemed acceptable by the parties.

The bill under consideration is aimed at moving the project into a phase of preliminary engineering and design. It would among other things allow the Natural Resources commissioner to negotiate terms for proposed project contracts that would be brought back to the Legislature for approval. It would allow certain leases to pay production taxes with gas, and it would move from a net tax to gross tax on gas, with a rate set at 10.5 percent beginning Jan. 1, 2022. That rate, combined with royalties, would determine the state’s participation rate.

The bill also calls for creation of a subsidiary of AGDC to carry the state’s interest in liquefaction and marine terminal facilities.

French said he believed there needed to be greater limits for what could be on the table during the next phase of project negotiations. He said he wanted to save the administration “the agony of being drawn in to a negotiation over oil.” He said the companies “will not be able to keep themselves from pressing for and potentially winning concessions from us on the oil tax arena if that’s an option.”

Natural Resources Commissioner Joe Balash said he appreciated the sentiment but said the wording of the proposed amendment was too broad and he worried it could limit discussion on related issues, such as how lease expenditures are handled.

On the issue of TransCanada, French said he had nothing against the company and was impressed with TransCanada’s competence. But he said many people still want to know what went wrong in pursuing a project under the inducement act, and he said the state should consider its options.

Several members raised questions about how long that could take and at what cost. Sen. Click Bishop, R-Fairbanks, said he was sympathetic to the amendment but noted that lawmakers have been told that only a handful of companies in the world could do this project. With a bid process, TransCanada might not want to come back, he said, creating something of a catch-22 situation.

Giessel, in an interview, said the only other concern she had with the bill was related to AGDC, but she said she was confident that would be addressed in the Senate Finance Committee, the bill’s next stop. Some lawmakers want to make sure the focus of AGDC, which has been pursuing a smaller, in-state gas pipeline, isn’t diluted under this bill.

Giessel said she also wanted to make sure intent language surrounding project labor agreements — a term borrowed from the commercial agreement — was clear.

Sen. Fred Dyson, R-Eagle River, wanted to make sure opportunities would be open to both union and nonunion workers.

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