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House Resources ponders AGIA concerns Committee struggling with role of TransCanada in North Slope LNG project and concerns about how state can exit existing license Kristen Nelson Petroleum News
The Alaska Legislature’s House and Senate Resources committees continue hearings on the administration’s proposals to take an equity position in a North Slope liquefied natural gas project.
Senate Resources held back-to-back hearings through early February, with more scheduled, on the Heads of Agreement and Memorandum of Understanding released by the administration Jan. 10, and on the enabling legislation (Senate Bill 138 and House Bill 277) required to make the HOA and MOU effective.
That committee also reviewed the Black & Veatch analysis of state royalties that the administration used in making its decision to go for an equity position in the Alaska LNG Project.
House Resources remains focused on the MOU between the state and TransCanada, which the administration has described as a transition from the license TransCanada holds under the Alaska Gasline Inducement Act, AGIA, into a more traditional commercial agreement.
Issues around exiting AGIA Commissioner of Natural Resources Joe Balash and Commissioner of Revenue Angela Rodell provided written responses Feb. 11 to House Resources Committee questions on the MOU.
Legislators expressed concern about how the state proposed to extract itself from the AGIA license it has with TransCanada. In their written responses the commissioners said the MOU provides that if the Legislature approves enabling legislation this session, the commissioners will initiate the uncontested abandonment provision provided under AGIA legislation. In the MOU TransCanada commits, upon passage of enabling legislation and execution of the transition agreements, to agree that AGIA is uneconomic, the commissioners said.
In response to a question from co-Chair Dan Saddler, R-Eagle River, about mechanisms for abandoning AGIA, Balash said the statute provides two paths out of AGIA, and both start the same way — with a declaration that the project is uneconomic. If the state declares the project uneconomic and TransCanada agrees, then by mutual consent the project can be abandoned. If TransCanada disagrees, then the state must prove the project uneconomic, which requires arbitration. Under the MOU, Balash said, the state would declare AGIA uneconomic and TransCanada would agree.
Rep. Mike Hawker, R-Anchorage, said language in the MOU addressing the state extracting itself from AGIA seems “rather soft” and requires agreement of the licensee. He asked if the administration could add firmer language.
Michael Pawlowski, deputy commissioner of Revenue, said the administration was open to discussing firming up that language.
Other alternatives? Hawker also asked what other avenues the administration pursued to get out of AGIA.
Balash said that after the governor in 2011 called on the parties, and the state’s AGIA partner TransCanada, to work on LNG, the state did contemplate alternatives, but didn’t see a need to break the partnership with TransCanada, which, he said, has been a good partner, worked well with agencies to solve problems and worked to understand the state’s issue.
Balash said they wrestled with a role for TransCanada — if any — and looked at a range from zero to representing the state’s interest in the midstream, as called for in the existing agreements.
One of the things the state learned was that the smaller TransCanada’s interest, the less likely it was that they would devote significant personnel to the issue, and that’s what a pipeline company really brings to the table, he said.
Balash also said that in the longer run TransCanada’s commercial and fiduciary interests align fairly well with the states.
Pawlowski said that the MOU was not drafted in isolation. While the MOU and HOA are separate agreements, the administration was working the HOA with all parties at the same time the MOU was being drafted.
One concern, he said, was that a small company without TransCanada’s expertise and financial clout would step into the pipeline company role, something no parties wanted to see. So in addition to benefits from the state’s side from TransCanada’s work in solving key issues, having TransCanada as a partner also met the comport level of the producers.
Pawlowski noted that the governor had been calling for a commercial agreement all through last summer. It took a long time working both the MOU and HOA concurrently before the administration was comfortable releasing the documents, he said.
The TransCanada view Rep. Peggy Wilson, R-Wrangell, asked about a concern that work already done would put the state in violation of its AGIA commitment not to support a competing project shipping more than 500 million cubic feet per day off the North Slope.
Tony Palmer, TransCanada vice president for business development, told the committee that TransCanada has participated with the state, the major North Slope producers and the Alaska Gasline Development Corp. to date, and said that work was not in contravention of the AGIA process.
Asked what would happen if the Legislature didn’t approve the enabling legislation, Palmer told Wilson that TransCanada has agreed on the structure going forward and the transition out of AGIA. He said he couldn’t speak to what would happen if the Legislature decides to say no to the proposal.
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