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Vol. 12, No. 4 Week of January 28, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Competition key to Palin gas line bill; Alaska Legislature waiting for administration’s proposal

As the 25th Alaska Legislature got started in mid-January, the North Slope gas pipeline project was a topic of high interest, one Gov. Sarah Palin discussed at some length in her state-of-the-state address Jan. 17 (see story in Jan. 21 issue of Petroleum News).

Even before that, House Republicans, in a Jan. 16 press conference, pegged the gas pipeline — along with ethics reform and energy prices — as topics of concern to the House majority.

House Speaker John Harris, R-Valdez, said energy cost has been an issue for many years in rural Alaska “but it is becoming now a cost driver in urban Alaska as well.”

Majority Leader Ralph Samuels, R-Anchorage, said legislators “need to be a little bit patient with the administration as they try to fine tune some of the ideas they’ve got” for a gas pipeline project bill, and said “this is an excellent opportunity for us to educate all the members, and not just the new members.”

Samuels was to present some gas pipeline basics at a meeting of House Finance Jan. 25. He said the presentation would start with basic terms and “some of the choices that any gas pipeline is going to have to deal with.” No matter what the project is and who the players are, he said, lawmakers have to understand the difference between rolled-in and incremental tariffs.

Samuels said he thinks initial gas line work can be done internally. “I don’t think it’s worth the money to hire a lot of consultants if there’s nothing to actually look at,” he said. Once the basics are presented, the Federal Energy Regulatory Commission or the National Energy Board could be invited in.

But you need to start with the basic, he said: “You need to know these terms before you’re going to understand what the FERC’s even talking about.”

How much negotiation?

In a Jan. 18 press conference, Palin, Acting Commissioner of Natural Resources Marty Rutherford and Commissioner of Revenue Pat Galvin talked about the new gas pipeline act the administration is working on, the Alaska Gasline Inducement Act or AGIA.

The criteria by which benchmarks will be evaluated will be in the bill, Galvin said. The administration expects “that the applicants would provide the benchmarks that they feel are appropriate and then the proposals would be evaluated” based on the criteria.

Rutherford said the administration wants to see competitive applications, and the goal would be for the applicants “to try to give us very specific benchmarks, attainable benchmarks and expedient benchmarks so that we see real movement forward on the project.”

As to when the Legislature will see the bill, the governor said it is “imperative that this is vetted in front of more experts,” and said she’s asked that the bill not be put into the Legislature’s hands for consideration “until we have absolute confidence that this is going to result in a project.”

The best way to ensure the approach is “fully fleshed” and “commercially reasonable, and that it will result in a project moving forward in a very specific fashion” is to put it in front of experts and the commercial applicants for feedback, Rutherford said.

“We want to make sure that when we get through this process that we have the vehicle that will result in a number of applications so we need to talk to the people that we expect to be our applicants, to make sure that we create a product that would be a process they’d want to participate in,” said Galvin.

Maximizing benefits for Alaskans

The Alaska Constitution will be the basis for maximizing benefits for Alaskan, said Palin. “Generally speaking … it’s maximizing benefits for Alaskans when we develop any of our resources and we start from there.”

The specifics are what they’re working on, she said.

Asked how transparent the process will be, Galvin said the intent is “that the public will be able to see, and through the Legislature participate, in an initial determination of … the state’s basically baseline requirements for a proposal.” He said it is also anticipated that the public will be able to see proposals as they come in, “so they will understand the choices that were made, ultimately, in deciding which project to do and then moving forward with it.”

The public will, through the Legislature, be able “to discuss what types and amounts of inducements it is willing to permit to move this project forward,” said Rutherford. “That is completely distinct from the … discussion that occurred under the last administration where … there was never full disclosure of what inducements were imbedded within that proposed contract.”

Rutherford said the new proposal will include what the administration believes it is important for the state to receive from the project: “… a reasonable tariff structure, an assured tariff structure, an assured process for expansion, for soliciting interest in an expansion and then the process by which expansion will occur.” Both are critical to the state “in terms of our future ability to explore and develop the additional resources that exist on the North Slope,” Rutherford said.

Not negotiating bill

Both Rutherford and Galvin said there is no negotiation going on with prospective applicants over what the administration’s bill will contain. There is no “sitting down and passing back and forth proposals,” Galvin said. “We’re telling them what our idea is; we’re getting their feedback … and then we take that information and process it as part of our decision making on what should be in the initial bill.”

Galvin said the purpose of the discussions “is not to negotiate a deal: it’s to set up a framework that will allow maximum participation and to provide recognition of what the state is going to demand and an understanding from the participants of what they’re going to get in return and finally, making sure that what is offered by the state is effective in getting the response that we want — which is moving the project forward.”

Rutherford said concerns they are hearing are that in a public process companies could be giving away “any commercial insight into how they do business or what their willingness will be on commercial issues, such as tariff structure.”

Galvin characterized the challenge as meeting “the public’s expectation of understanding why a particular project was selected while still being sensitive to the proprietary information that a company may not want to have released to their competitors in this process.”

The administration’s bias, Rutherford said, “is that all the applications would be released. That’s the starting point.”

Palin said that while the companies have proprietary information they want to hold on to, and there are some legal ramifications, “I would rather err on the side of providing more information to the public.”

The governor said that is “all the more reason … why we have to be so adamant on our part that we are going to provide what the ‘must haves’ are in front of the public, so that they know what the criteria is that we’ll be using in judging these proposals.”

One possible approach, Galvin and Rutherford said, is an executive summary of sorts.

While the administration wants to make as much information as possible public, “we don’t want that to end up foreclosing our best competition,” Galvin said. “And so we’re trying to find a mix there that will provide the public with the information the public needs to understand what these proposals really are and what value they provide, while also not foreclosing participants.”

—Kristen Nelson



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