|
Legislature wants more AGIA information TransCanada says House Bill 142 appears to violate AGIA license agreement; bill wants administration to defend economics, spending Kristen Nelson Petroleum News
AGIA, the Alaska Gasline Inducement Act, is back on the table in Juneau. The House Finance Committee heard House Bill 142 on April 4; it creates “a rebuttable presumption” that the project licensed under AGIA “is uneconomic because of insufficient firm transportation commitments during the first open season.”
HB 142 does not change AGIA, or the contract created under AGIA, but is simply a request to the administration from the Legislature on whether AGIA is working, Legislative Legal Services attorney Donald Bullock told the committee.
Tony Palmer, TransCanada vice president for major project development, told the committee HB 142 “appears to violate the AGIA license agreement” and said TransCanada is opposed to the bill.
House Speaker Mike Chenault, R-Kenai, the bill sponsor, said world economic conditions are changing dramatically. With shale gas flooding the Lower 48 market and gas prices steady at extremely low levels, the economic framework on which AGIA was built may no longer be economic. If that is the case, he said, Alaska needs to know. If AGIA doesn’t bring Alaska closer to a gas pipeline, the state has the responsibility to bring all other options back to the table as quickly as possible.
House Bill 142 calls on the administration to prove that AGIA is economic, Chenault said.
Chenault said the AGIA process was sold by a previous administration as the only viable way to bring a gas pipeline forward and was sold to Alaskans as a way to get Alaska out from underneath the thumbs of the big three producers.
Chenault said he has fought against those in the building who didn’t want to put enough in the reimbursement pot to pay TransCanada for their expenses, and was instrumental in getting the money committed because the state had a contract.
The issue now, he said, is whether the project is economic or uneconomic and should we go forward
“My fear is we’ll spend $500 million and still have no gas leaving the state.”
Disclosure to administration The bill requires that TransCanada Alaska Co. LLC and Foothills Pipe Lines Ltd., the licensees under AGIA, disclose to the commissioners of Natural Resources and Revenue by July 15 that the AGIA project “received firm transportation commitments during the open season sufficient to support the construction of the project” or the project will be deemed uneconomic. The commissioners will notify the Legislature before Aug. 1 whether firm transportation commitments sufficient to support project development have been disclosed to them and submit a report to the Legislature before Aug. 15 rebutting the presumption that the project is uneconomic.
Tom Wright, staff to Chenault, told the committee the language in the bill should probably be changed from firm transportation commitments to precedent agreements to match the TransCanada filing with the Federal Energy Regulatory Commission.
When requesting an appropriation for reimbursement of qualified expenses under AGIA for fiscal year 2013, the bill requires the commissioners to provide testimony and evidence that the project has credit support sufficient to finance construction of the project and that predicted costs of transportation at a 100 percent load factor would result in a producer rate of return that is not below the rate typically accepted by a prudent oil and gas exploration and production company for incremental upstream investment.
Violation of license agreement Palmer told the committee that TransCanada’s AGIA license application identified 2014 as the end of the development phase, with up to six years provided for acquisition of firm transportation commitments. In 2014 TransCanada will know whether it has regulatory approval, firm transportation commitments and financing — all of which are “required in order to have a successful project.” That’s when a final investment decision will be made, he said.
When the Legislature approved the AGIA license it ratified that schedule.
From a businessman’s perspective, HB 142 “appears to violate the AGIA license agreement; it appears to change the rules,” Palmer said, effectively amending key provisions of the AGIA license agreement.
The bill also “raises uncertainty of the state’s support for AGIA at a critical time” when TransCanada is in negotiation with potential customers.
“HB 142 would unilaterally change the contract between the state and the AGIA licensee,” Palmer said, because AGIA presumed the project was economic and “HB 142 reverses that key presumption; it turns it on its head.”
Palmer said he understood from discussion in the committee that precedent agreements would be substituted for firm transportation agreements in the bill, but said it still requires that TransCanada have financing for the project, advancing the date for seeking financing by three years. That wouldn’t work, Palmer said: “because you can’t secure financing without firm transportation agreements. You don’t secure financing based on precedent agreements.”
| 