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FERC accepts certificate surrender Remaining partners in 1977 conditional certificate holder Alaskan Northwest Natural Gas Transportation Co. owned by TransCanada Kristen Nelson Petroleum News
The meatball is no more. On Feb. 6 the Federal Energy Regulatory Commission accepted surrender of the conditional certificate Alaskan Northwest Natural Gas Transportation Co. received in 1977 for an Alaska gas pipeline project. TransCanada owns the two remaining ANNGTC partners.
Partners who withdrew from ANNGTC had a right to compensation for monies they contributed. With interest that amount had grown to $4 billion early in the decade when it became public knowledge and was nicknamed “the meatball.” It had reached some $9 billion by the time the Alaska Legislature was taking testimony on TransCanada’s application under the Alaska Gasline Inducement Act.
Alaska Gov. Sarah Palin said Feb. 9 that the FERC order recognizing surrender of the conditional certificate terminated ANNGTC certificate proceedings. She said in a statement that the FERC order confirmed the finding under AGIA by the commissioners of Revenue and Natural Resources that the so-called withdrawn-partners’ liability would not be transferred to gas shippers through the pipeline tariff.
TransCanada Corp. Vice President Tony Palmer told Petroleum News Feb. 11 that as he testified last year, the ANNGTC project is not proceeding and is handing back all regulatory approvals. “We did exactly what we described last year,” he said.
ANNGTC is currently a partnership in dissolution, he said: “The project is not proceeding and will not be built.”
Surfaced under Knowles The issue surfaced under former Gov. Tony Knowles. His Alaska Highway Natural Gas Policy Council was told in 2001 that partners who dropped out of the ANNGTC project were owed as much as $4 billion.
A TransCanada representative told the policy council that the issue was being negotiated and said the original cash outlay by the withdrawn partners was $280 million, an amount compounded by ratemaking practices.
TransCanada representatives told Alaska legislators later in 2001 that the remaining ANNGTC partners were talking to former partners and hoped to have the issue completely off the table. The company was not in the project to recover historic costs, they said, but for the investment opportunity going forward.
Resurfaced with AGIA The withdrawn-partners issue resurfaced when TransCanada applied for a license under AGIA.
ConocoPhillips — one of the companies that has natural gas to ship on a gas pipeline from the North Slope to market — told legislators in January 2008 that the tariff on a new line wouldn’t be affected but was concerned withdrawn partners might raise the liability issue and said it created uncertainty around partnering with TransCanada.
The state asked TransCanada about the withdrawn-partners obligations and a response was posted on the state’s AGIA Web site in January 2008.
The original partnership agreements contained “provisions under which the capital account of a withdrawn partner would be reclassified to ‘subordinated debt’ of the partnership and payable by the partnership to the withdrawn partners after” the gas pipeline became operational and “when the partnership determines that they can be made without undue hardship.”
A 2007 financial report of the original partnership — ANNGTC — filed with FERC showed the obligation to withdrawn partners at some $8.9 billion, the state said. ANNGTC was formed in New York in 1978 as a general partnership to construct and operate the Alaska Natural Gas Transportation System, to be built based on the Alaska Natural Gas Transportation Act of 1976.
Quick construction expected Quick construction was expected when the gas line partnership was formed, with an operational date as early as Jan. 1, 1983. Each partner made an initial contribution equal to its pro rata share of up to $24 million; the board set the amount of annual contributions thereafter.
Rights of partners to withdraw were limited and they were not entitled to any return on their capital contributions until after the line was completed. When the partnership’s executive committee determined payment might be made without undue hardship to the partnership the withdrawn partners would receive the amount of their capital contribution along with a return on that capital calculated at the 14 percent rate FERC set for funds during construction.
Partners began withdrawing in 1981 and the last partner not affiliated with TransCanada withdrew in 1994.
The AGIA application was not made under ANNGTC, but by a partnership of TransCanada Alaska and Foothills Pipe Lines, both 100 percent owned by TransCanada Corp.
TransCanada told the state its application “does not contemplate the use of any assets” owned by ANNGTC, including the conditional FERC certificate ANNGTC developed under the Alaska Natural Gas Transportation Act.
Right of way will expire TransCanada Vice President Tony Palmer reminded legislators in early 2008 that before any monies were owed under the withdrawn-partners’ liability the ANNGTC project would have to be built and the partnership’s board would have to determine that the money would be paid without hurting the partnership.
ANNGTC was the partnership formed to build the Alaska portion of the gas pipeline system, so Alaska partnership assets could be an issue, he said, and because of that TransCanada decided not to use any of the ANNGTC assets, which consisted of old engineering studies and permits, in its AGIA application. Palmer said the company would start from scratch in Alaska and would not be using the rights of way or permits obtained by ANNGTC.
The existing ANNGTC federal right of way in Alaska expires in 2010, before TransCanada would apply for a right of way, something it plans to do in 2011. In March 2008 Palmer told legislators that TransCanada had withdrawn an application for a state right of way it filed in 2004.
And TransCanada is not using the 1976 federal gas pipeline legislation, but the 2004 Alaska gas pipeline enabling legislation passed in the United States in 2004, he said.
Palmer had already said TransCanada would not be using the conditional FERC certificate.
The governor said FERC’s acceptance of TransCanada subsidiary ANNGTC’s Dec. 15, 2008, surrender of the 1977 conditional certificate confirms the commissioners’ conclusion that ANNGTC is unlikely to be a significant barrier to the success of TC Alaska’s AGIA project.
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