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Can AGIA application be adjusted? Porter: Legislators can tighten app; Rutherford: Authorities clear in statute, changes threat to commitment Kristen Nelson Petroleum News
Since the Legislature is a separate and equal branch of government should it be able to make changes in an application under the governor’s Alaska Gasline Inducement Act?
There are two opinions on that, one from Legislative Budget & Audit consultant Steve Porter, a former member of the Murkowski administration, and an opposing view from Deputy Commissioner of Natural Resources Marty Rutherford, who heads the administration’s gas pipeline team.
Porter told House members Feb. 26 that the departments of Natural Resources and Revenue are determining if they will move forward a bid under AGIA to the Legislature for approval.
This is a bid process, Porter said. Once you have a bid you look at it and you tighten it up. You can’t make big changes, but you can tighten it up. Legislators have replaced upstream shippers in the process, he said, and shippers would sit down and negotiate with the pipeline company. You are sitting in the place of the shipper to make sure terms are fair to the state, he told legislators.
In response to a question from Rep. Mike Doogan, D-Anchorage, on whether the administration agrees that the Legislature is in a position to tighten, House Majority Leader Ralph Samuels, R-Anchorage, said they are separate and equal branches of government.
Doogan said he thought legislators should get a legal opinion on whether they had a third option, which was neither approval nor disapproval.
Rep. Paul Seaton, R-Homer, asked Porter how the Legislature would go about tightening a bid, rather than just approving it.
Porter said the Legislature would need to draft a bill and say these are the terms under which you approve the contract.
As an example of what could be tightened up, Porter said AGIA requires a 70-30 debt-equity ratio. TransCanada proposed 70-30 during construction, and said they would go to 75-25 after construction.
But, he said, they proposed 60-40 for expansions; if you look at the statute, expansions are included in the project.
Porter said this was an opportunity for the Legislature to fix something that would otherwise require rejection of the application.
Administration disagrees Rutherford disagreed on both the debt-to-equity ratio and on whether the Legislature could make changes to a proposed license submitted by the commissioners.
She told Petroleum News in an e-mail that Porter’s conclusions about a need to “tighten up” the TransCanada application because of the 60-40 debt-to-equity ratio for capacity expansions to the pipeline, rather than a 70-30 ratio, are mistaken.
“The requirement in AGIA for a 70-30 debt-to-equity ratio only applies to the rates for the initial project — not to the rates for later pipeline expansions,” she said.
TransCanada’s proposed debt-to-equity ratio for pipeline expansions “is not inconsistent with AGIA” so “there is no need to consider whether the Legislature would need to ‘tighten up’ the application” as suggested.
On whether the Legislature could do something other than accept or reject a proposed license, she said, “AGIA is clear in its delegation of authority: The commissioners have authority to solicit proposals and recommend a license to the Legislature and the Legislature has retained authority to approve or not approve ‘the license proposed to be issued by the commissioners.’” The statutory reference is to AS 43.90.190.
You also have to consider the applicant.
“AGIA doesn’t give the applicant the opportunity to decline the license, if issued, which certainly implies to me that we risk the ‘acceptance’ commitment from the applicant if there are attempts to change the elements of the application,” Rutherford said.
Negotiations vs. making laws Porter talked about the differences between the corporate world — one of gated decision making and negotiations — and that of the sovereign, which is not a negotiation process but a process of making laws.
Lawmaking is different than negotiations, he said, and urged lawmakers to listen to what the North Slope producers say they want to participate in a gas pipeline. It’s not impossible to figure out what they want, he said: You just have to listen.
He told legislators that he believes a fair gas tax will bring the North Slope producers to the table on a gas pipeline, noting that the administration has recommended that the Legislature take up the gas tax issue in its next session.
That’s a law-making process, he said, not a negotiation. Lawmakers can find out what the concerns of the taxpayer are, but it is the responsibility of lawmakers to make decisions which are fair to both.
Rep. Mike Kelly, R-Fairbanks, said that in his experience with tax changes industry would fight as hard over a nickel as it would over a dollar and he didn’t think it was possible to gauge how fair industry thinks a proposed tax regime is based on the immediate reaction to a proposal that legislators get.
Porter said one thing that the Legislature could do is act as an arbiter on the fairness of regulations, and suggested they request that the Department of Natural Resources draft its royalty-in-value, royalty-in-kind regulations for gas and have them in place before the next session.
That way, he said, the Legislature could judge the fairness of those regulations.
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