September 07, 2001 --- Vol. 7, No. 114September 2001

Original partners in Foothills Pipelinesí Alaska Highway gasline project want to recoup investment, permit costs; liability could be up to $4 billion

The governor's Alaska Highway Natural Gas Policy Council and its Federal/International Action Subcommittee met today in Anchorage.

The subcommittee, chaired by Charlie Cole, questioned attorney Curt Moffatt, who represents Foothills Pipelines in Washington, D.C., closely on money expended on the project by original partners, now withdrawn from the project. Carl Marrs of Cook Inlet Regional Corp. asked Moffatt about money already expended on the project and how it would figure into tariff rates. Moffatt said the market would determine how much of the sunk cost could be recovered, and there was a lengthy discussion on how much the sunk cost was.

Charlie Cole told Moffatt that the subcommittee had heard amounts of investment by withdrawn partners ranging from $500 million to $4 billion and Marrs said they had also heard $2.5 billion.

Moffatt said that the original cash outlay was some $280 million and that the $2.5 billion to $4 billion figures come from interpretations of documents and rate making practices.

The current partners, Moffatt said, are in negotiations with withdrawn partners over the sunk cost. He said he believes that agreement will be reached on some level of prior spending and good will for keeping the permits alive that is appropriate. "I just do not believe it's a $4 billion issue," he said.

John Katz, director of state-federal relations and special counsel in Washington, D.C., told the subcommittee by phone that the administration is very concerned about the $4 billion contingent liability, has talked to Foothills and TransCanada about it, and has slowed legislation because of it. And Congress would be unlikely to legislate away the $4 billion, because if the claim is valid, the government could then end up being liable.

Proposed amendments to the Natural Gas Act were also discussed.

Moffatt said that partners Foothills and TransCanada, who hold the permits for the Alaska Highway gasline project authorized in the in the 1970s and 1980s, believe that no changes in federal legislation are required for a gas pipeline following the Alaska Highway. He said Foothills believes the standard should be to "do no harm to the ANGTA regime and all of its components."

Current legislative proposals, he said, would create a parallel procedure for a new proposal before the Federal Energy Regulatory Commission and would lead to confusion and delay. Asked by Cole if Foothills thinks Mackenzie Delta gas could go to market before Alaska gas, Moffatt said Mackenzie needs infrastructure. But, he said, the sequence of which goes first probably depends on how astute government forces are in the United States. If you start all over with new Alaska gasline legislation, you could slow down the Alaska project, Moffatt said.

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