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Dueling memos on AGIA application LB&A attorneys say TransCanada application noncompliant; administration attorneys disagree Kristen Nelson Petroleum News
The administration of Alaska Gov. Sarah Palin is still evaluating TransCanada’s application under AGIA to be the state’s licensee for a natural gas pipeline project. The Alaska Legislature will only get a proposal if the administration vets it as being in the state’s best interest. Already, however, attorneys for the administration and the Legislature are at odds over whether the application meets requirements of the Alaska Gasline Inducement Act.
A similar issue was raised in January and attorneys working for the administration’s gas pipeline team defended the decision that the TransCanada application meets AGIA requirements (see “TransCanada application out for comment” in Jan. 13 issue of Petroleum News).
Attorneys for the Legislative Budget and Audit Committee told LB&A Chair Ralph Samuels in a Jan. 23 memo that TransCanada’s “menu of proposals” in its application “is inconsistent with AGIA and the RFA (request for applications).”
On one issue, fiscal regime stability, the LB&A attorneys said: “The fundamental condition that TransCanada is seeking the State’s intervention — establishing a ‘predictable upstream fiscal regime’ — is not different from the relief long sought by the three major producers.”
Attorneys for the administration’s gas pipeline team said in a Feb. 1 memo that they disagree with the conclusion of the LB&A memo that TransCanada’s proposals are inconsistent with AGIA or the RFA. They said that in its AGIA application “TransCanada unconditionally commits to take all the actions required by AGIA and the RFA.”
Samuels, an Anchorage Republican and the House majority leader, said Feb. 4 that LB&A’s attorneys say TransCanada did not meet the terms of AGIA. At the House Majority’s press availability Samuels said he plans to ask TransCanada whether it thinks it stands a chance of getting a pipeline if they don’t get any of the contingencies in their application, including the bridge shipper provision, a restructuring of the federal loan guarantee and fiscal stability from the state.
Issues surrounding contingencies in the TransCanada application also were raised by legislators when Commissioner of Revenue Pat Galvin updated legislators on the AGIA process in House and Senate meetings Jan. 30.
Is application contingent?
The LB&A attorneys list federal loan and bridge shipper contingencies as the most significant compliance issues. TransCanada said in its application that it would work with the state “to jointly seek authorization” to use the federal loan guarantee authorized by Congress in 2004 to fund construction overruns. TransCanada said in its application that this use of the loan would be dependent on reaching an acceptable agreement with the federal government.
TransCanada also said it would work with the state to establish a mechanism whereby the federal government would act as a “bridge shipper” to assume some or all of the initial risk of the project.
The LB&A attorneys list a number of other “conditions or contingencies” in the TransCanada application, including a requirement that the project have sufficient credit support, that the state work to ensure a favorable economic climate for shippers and that the assets of TransCanada Corp. prior to award of the AGIA license would remain the property of TransCanada, and conclude that the sum of the contingencies make TransCanada’s application inconsistent with AGIA.
Administration attorneys say it is Attorneys for the administration gas pipeline team said they disagree with the conclusions of the LB&A memo that “TransCanada has placed improper conditions and contingencies on its commitments.” TransCanada has, they said, “unconditionally met the 20 mandatory requirements of AGIA, and is consistent with the RFA.”
In addition to its commitments, they said, TransCanada “also offers several creative ideas to enhance the chances that the project will succeed.”
Using the federal loan guarantee to fund construction cost overruns is one of those ideas. TransCanada’s application says the loan guarantee idea would be pursued if agreement can be reached with the federal government. “This means that if the U.S. government does not agree with the loan guarantee idea, TransCanada will not pursue the idea further; however, its AGIA commitments would nevertheless remain valid and have not been conditioned on the idea.”
The attorneys for the gas team said the bridge shipper idea is a suggestion put forward by TransCanada in the event that an open season fails: The state and TransCanada would suggest that the federal government act as a bridge shipper. “The LB&A Memorandum has misconstrued TransCanada’s bridge shipper concept,” the gas team attorneys said. TransCanada “merely states the obvious — that the bridge shipper concept will not work unless the State and particularly the federal government agree to it.” But the bridge shipper concept is not a condition of TransCanada’s AGIA commitments, they said; the company has simply stated “that the (bridge shipper) idea will not work without state and federal support.”
The gas team attorneys said TransCanada’s suggestion that the state attempt to reach agreement on an upstream fiscal regime with the producers “is just that: a suggestion, not a condition. The LB&A Memorandum misinterprets TransCanada’s suggestion, incorrectly concluding that TransCanada has impermissibly conditioned its Application in a manner ‘not different from the relief sought by the three major producers.’”
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