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Legislative consultants: AGIA can’t hurt Juneau session with experts hired by LB&A includes some agreement by consultants, review of TransCanada’s financial strength Kristen Nelson Petroleum News
Consultants hired by the Legislative Budget and Audit Committee to evaluate the TransCanada proposal under AGIA, the Alaska Gasline Inducement Act, told members of the Alaska Legislature that they see no harm in approving the license.
Dan Dickinson, a former Tax Division head under the Murkowski administration, had been tasked with helping legislators examine the issues.
There have been five major reasons given to vote for a TransCanada license, Dickinson told legislators June 5, the second day of the special session: It provides enforceable commitments the state hasn’t had before; it makes what has been described as a “dazzling” amount of money for everyone, so it seems logical, he said, that producers will sign on and the project will advance; it “guarantees” the state’s must-haves for an “enhanced open-access pipeline” as opposed to the open access pipeline created by federal law; it is not in competition with a liquefied natural gas project — and in fact may be the best way of getting an LNG export project once the mainline is operating; and voting for the license is the best way of meeting in-state gas needs.
Dickinson said there is another reason: Granting an AGIA license to TransCanada “probably won’t harm the prospects for a line and may strengthen them.” We’re on our own one- or two-yard line, he said, and while it’s important to do it right, this won’t be a touchdown play. He said he didn’t see any huge downside in voting for the license.
Is this like chicken soup? It couldn’t hurt? Sen. Con Bunde, R-Anchorage, asked all the LB&A consultants at the table — Barry Pulliam of Econ One Research, Lesa Adair of Muse Stancil, John Neri of Benjamin Schlesinger & Assoc. and Dickinson.
Dickinson reiterated that he didn’t see any harm to granting the license. Pulliam said it won’t hurt; Adair said talking about it helps; and Neri said “I see no harm.”
What does vote cover? An issue which came up during the LB&A presentations June 4-5 and was continued when the administration took the stand (June 6-10) was what exactly legislators were being asked to vote on.
Reps. Gabrielle LeDoux, R-Kodiak, and Mike Doogan, D-Anchorage, both had concerns about what the vote on AGIA covers.
Dickinson said there are three documents included: the AGIA statute; the request for applications; and the application from TransCanada — and questions to TransCanada and its responses.
The question came up again later in the hearings when the administration was on the stand. LB&A Chair Rep. Ralph Samuels, R-Anchorage, wanted to know if questions LB&A sent to TransCanada about the application, and the responses the company sent back, would also be considered?
This raised further questions from legislators about how whether committee hearings on the AGIA statute would be included.
This was not an issue that reached resolution in the discussion, but Commissioner of Revenue Pat Galvin told legislators it is not uncommon to have multiple-document agreements.
Issue of expandability Sen. Joe Thomas, D-Fairbanks, asked what certainty there would be that if the producers built a line, rather than TransCanada, that it would be expandable.
Neri said if the capacity was all taken and the pipeline didn’t want to expand, a producer with new gas could file for expansion with the Federal Energy Regulatory Commission and FERC would act. AGIA requires the pipeline to test the market every two years, to see if there is interest in expansion, Neri said; if there is interest then there is a standard procedure at FERC for expansions.
Thomas said his concern was what would happen outside of AGIA, if AGIA failed.
Neri said the Alaska Natural Gas Pipeline Act gives the ability to the new producer to go to FERC and file a protest; FERC would then decide, he said, whether they were going to force expansion. This is different, he said, under ANGPA than FERC’s normal authority.
There have been concerns expressed about going to FERC for expansions and Dickinson said that while Congress has said FERC has the authority to force expansion, it is an untried process.
Evaluation of TransCanada Muse Stancil’s Adair provided an extensive financial evaluation of TransCanada and its capability to build an Alaska line. She said a project the size of the Alaska gas pipeline “dwarfs” the cumulative total of TransCanada’s capital spending over the last five years. Taking on the project would likely require the company to raise additional equity.
The project does, however, complement the company’s existing gas pipeline and storage assets,
As far as TransCanada’s ability to handle Alaska gas, she said Muse Stancil is comfortable that TransCanada can handle all the gas through its Alberta hub. There is excess capacity before and after Alaska gas, she said, although there might be a small issue of capacity at startup. Adair said the Alberta gas supply forecast done by the National Energy Board is based on $7 gas and higher prices might produce more drilling, but based on NEB’s reference case supply will exceed total demand and takeaway capacity by 300 million cubic feet a day in the first year of Alaska gas. Thereafter, the expected continuing decline in Alberta production is expected to provide more than enough capacity for Alaska gas. The demand-balance forecast bas based on Mackenzie gas going into production before Alaska.
Would TransCanada be on the list? Doogan asked Adair whether TransCanada would be on the list if Alaska were looking to hire a pipeline company — and where on that list it would be ranked.
Adair said she wouldn’t rank a list until she’d seen proposals, but TransCanada would be on the list based on existing assets and its ability to move gas to the Lower 48.
Rep. Mike Hawker, R-Anchorage, wanted to know whether TransCanada was the only entity with Canadian assets that could be used to move Alaska gas. Adair said the TransCanada portfolio, where you can get to from the company’s Alberta system, is the best way. There are new-build options, she said, and you could move part of the gas other ways.
TransCanada is at the top of the list as far as existing facilities, Adair said.
Asked by Rep. David Guttenberg, D-Fairbanks, whether TransCanada is capable of pulling this off, Adair said whoever is in charge of the project will have to pull together the human capital to do the project. People with experience are hard to come by right now, but TransCanada has a lot of the core competencies to do the project, she said.
She said engineering and construction will be done by third parties, likely more than one construction company and maybe more than one engineering firm.
Adair said firm transportation commitments are necessary, and need to be made by producers with substantial assets to backstop those commitments.
Without firm transportation commitments, she said, there isn’t even a valid reference case. Adair said she didn’t believe the pipeline would be built without firm transportation commitments.
Sen. Bill Wielechowski, D-Anchorage, asked Adair why producers would be interested in building a pipeline when the returns are so low relative to other projects they have.
The pipeline is just the piece of equipment, Adair said: It’s about getting the resource to market.
As to why producers would want to own the pipeline, she said when you turn over operatorship you don’t always have your goals aligned and there may be more intangible things the producers would want to control. You eliminate possible issues if you operate, she said, especially at a time when every exploration and production company is trying to add reserves to its balance sheet.
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