Pipeline talks break down

MidAmerican Energy withdraws application to develop gas pipeline

Posted: Friday, March 26, 2004

Just one month after the chairman of the MidAmerican Energy Holdings Co. told state lawmakers he expected to conclude negotiations on a gas pipeline contract by mid-March, the company announced Thursday it is withdrawing its application altogether.

The negotiations broke down Monday over MidAmerican's demand for a five-year period of exclusive rights to develop a pipeline.

MidAmerican was the partnership pushing to build a pipeline quickly. The company had wanted a contract set this legislative session, while competing applicants would not put a deadline on negotiations.

"We requested a business partnership with Alaska that would have aligned us with the state on an exclusive basis in recognition of MidAmerican's willingness to fund development of an independent pipeline and to do so on an accelerated schedule," said MidAmerican chairman and CEO David Sokol. "We are extremely disappointed the state of Alaska rejected this approach, which we had clearly discussed with Gov. Murkowski before filing our application."

The governor's office says MidAmerican essentially wanted a blank check from the state. Mike Menge, the governor's special assistant for energy, mining and the environment, said the company wanted the state to grant exclusive rights without first developing the tariff that gas shippers would pay for use of the pipeline.

"We wouldn't know what the revenue would be. There was no meat on the bones, and that was the breaking point," Menge said. "We were not willing to grant them that level of exclusivity without some formal assurance on their part they could move the project forward."

The exclusivity MidAmerican was demanding would preclude any other party from working with the state on development of a gas pipeline. The state also has an application from the big three gas producers that hold rights to North Slope natural gas: ExxonMobil Corp., BP Exploration Inc. and ConocoPhillips.

In January, MidAmerican submitted its application along with Pacific Star Energy and Cook Inlet Regional Inc. (CIRI). The group's proposal called for a 745-mile pipeline extending from Prudhoe Bay to the Alaska-Yukon Territory border near Beaver Creek. The proposal called for the pipeline to hook up with a new Canadian line at the border, possibly built by pipeline and power company TransCanada.

Menge said it is not clear that TransCanada is willing to partner with MidAmerican, which was another hurdle in the negotiations. Under existing federal law, TransCanada holds exclusive rights to the right-of-way for the pipeline. Menge said MidAmerican could get around that by convincing TransCanada to transfer that right. He said the only other way to get around it would be through new federal legislation.

Carl Marrs, president and CEO of CIRI, said TransCanada had committed to working with the group on the pipeline.

"The governor wanted them to transfer those rights immediately," Marrs said. "We felt very comfortable that we had enough of an agreement with TransCanada to move forward."

Marrs said the group wanted the exclusive rights to protect the money it was putting at risk. He said the group offered to spend up to $100 million to see whether building the pipeline would be economically feasible.

"Nobody's going to go spend $100 million unless you have a right to build the pipeline. The state won't give us that right on an exclusive basis. If we proved that we could build the pipeline and charge a reasonable tariff, the state of Alaska at the end of the day could say, 'Thank you, boys, but we don't want you. We can have X, Y, Z company do it. You can't put $100 million at risk without some agreement that says you have a right to build it," Marrs said.

Marrs and Sokol said the state understood their position on the exclusive rights and indicated earlier that would be fine.

"As we started the negotiations, it became apparent that it wasn't fine. They changed the game on us. It became a political game," Marrs said.

Marrs said he didn't think the group would resume talks.

Murkowski sent a letter to MidAmerican Thursday saying the state wanted to continue working with the company on the project.

House lawmakers spoke on the issue during Thursday's floor session. Democrats said they were concerned that the negotiation process had been too secretive, while Republicans cautioned their colleagues not to jump to conclusions or lay blame, as they weren't privy to the whole story.

"Let's be very careful about criticizing things we truly don't know about because MidAmerican's proposal, all the details of it, aren't available to us in the Legislature. We have not been part of and will not be part of the negotiations. This is something that has been given to the administration by the Stranded Gas Act," said Rep. John Harris, R-Valdez.

Rep. Norman Rokeberg, R-Anchorage, said later he's planning to introduce a resolution establishing a joint legislative gas pipeline committee.

"It's going to be more or less educational and we'll be tracking (the process) as closely as possible without upsetting the statutory balance," Rokeberg said.

House Minority Leader Ethan Berkowitz, D-Anchorage, told the rest of the House during the floor session that he supported the idea of the legislative committee.

"We've been too long in trusting (the administration) to negotiate and then divulge to us what is going on in those negotiations," Berkowitz said.

• Masha Herbst can be reached at masha.herbst@juneauempire.com.

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