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February 2011

Vol. 16, No. 6 Week of February 06, 2011

Legislature gets report on AGIA payments

Kristen Nelson

Petroleum News

The commissioners of the Alaska departments of Revenue and Natural Resources reported to the state Legislature Jan. 28 on reimbursements made by the state under the Alaska Gasline Inducement Act.

TransCanada Alaska Co. LLC and Foothills Pipe Lines Ltd. received the state license under AGIA in December 2008, and in exchange for commitments related to the project schedule, tariffs and future expansions, TC Alaska is entitled to inducements from the state including up to $500 million in matching reimbursements for qualified project expansions.

Reimbursements are at a rate of 50 percent of qualified expenditures prior to the close of the first binding open season and 90 percent thereafter. Qualified expenditures include costs directly and reasonably related to advancing the project, and exclude overhead, lobbying and litigation costs, civil or criminal penalties or fines, or expenditures for assets or work product acquired or developed before the license was issues.

TC Alaska submits expenditures on a monthly basis and requests for reimbursement each quarter.

The Department of Revenue does a due diligence review on the expenditures and a separate, high-level due diligence review if done by the state’s technical pipeline monitor.

Delay at end of FY 2010

At the end of fiscal year 2010 (June 30, 2010), TC Alaska was behind in submitting reimbursement expenditures, partly due to the addition of ExxonMobil to the existing reimbursement process. The state and TC Alaska focused on getting the reimbursement current and that was accomplished by the end of October.

In fiscal year 2011, $250,000 was appropriated for development of an AGIA information reimbursement system to improve the collection, tracking, reviewing and reporting of project expenditures. The automated system is expected to be complete this May.

The first annual audit of TC Alaska was completed by Martindale Consultants Inc. in November and covered expenditures reimbursed by the state through the calendar year ending Dec. 31, 2009, which covered four months of activity because of delay in submission of reimbursements.

Reimbursements

By the end of fiscal year 2010, TC Alaska had been reimbursed some $4.4 million for expenditures submitted through the second quarter of 2009. The state said the addition of ExxonMobil to the project delayed the rate at which TC Alaska could submit expenditures.

To date, TC Alaska has been reimbursed some $36.7 million at the 50 percent rate for work submitted through the second quarter of 2010.

TC Alaska has submitted a total of $92.2 million in gross expenditures for review. The state took exception to $13.8 million and has not reimbursed that amount; $2.5 million is being held pending receipt of additional information.

TC Alaska has submitted third-quarter 2010 reimbursement claims for gross expenditures of $22.3 million, claims which contain costs reimbursable at both the 50 percent and the 90 percent matching rates.

The next reimbursement is expected in late February.

Reimbursements by general cost categories include: $545,172 in general expenses (2 percent); $20,716,088 in pipeline related expenses (56 percent); $10,508,139 in gas treatment related expenses (29 percent); $1,619,235 in environmental, regulatory and land expenses (9 percent); and $3,345,903 in law and other third-party expenses (4 percent).

By region, 70 percent of the qualified expenditures were in Alaska, 24 percent in southern Yukon and 6 percent in British Columbia.






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