Dunleavy defends his no vote on SB3001

Wasilla Republican says Walker’s bill warrants Legislature backing, but says administration alignment still lacking after a year

STEVE QUINN

For Petroleum News

Sen. Mike Dunleavy was clear about his no vote on Gov. Bill Walker’s SB 3001 bill to buy out TransCanada and seek additional appropriations. It wasn’t about the bill’s contents; it was about what the Wasilla Republican and Senate Finance Committee member sees as a lack of continuity within the administration. Many voting yes felt the same way and Dunleavy says he hopes things get smoothed out - and soon.

Dunleavy spoke to Petroleum News about the recent special session and what lies ahead in January when the next regular session begins.

Petroleum News: You were a no vote. What were your concerns?

Dunleavy: going back to early fall in a meeting in Mat-Su, which I was privy to, a quarterly meeting as part of SB 138. These are quarterly meetings with the producers and the administration components involved in gas line development. It was a very chaotic meeting. It was difficult to find out who was in charge of what aspects of the project.

Who were the decision makers? What were the lines of communication? We are talking internally with the administration. This was a six and a half hour meeting with no breaks. It went from 6 p.m. past midnight.

It was a very important meeting, a very interesting meeting. The long and short of it was many of us were concerned about what we heard and also what we didn’t hear. There was a bunch of confusion. There seemed to be a lack of information. It was very concerning.

Then we come down here for the special session. We knew the title of the call - reserves tax and two other items embedded within one other item. We had no bill. We no idea what was going on. We had an idea about the gas line and these broad topics. If we knew what was going on we would have had time to do research and ask questions.

When we got down here at the last moment, the reserves tax was pulled off and so we were left with a call dealing with TransCanada and an appropriation to beef up administration components and get us to the next gate and also possibly into the marketing phase.

Petroleum News: So this a continuation of that Mat-Su meeting frustration then?

Dunleavy: OK, so we began hearings and yes it was again difficult to find out who was in charge.

We asked for an organization chart months before. Some say - and there is some legitimacy to it - why Dunleavy does an organizational chart matter? We are talking about buying out TransCanada and we are talking about appropriating additional monies for DNR, DOL, etc. You have to be able to ask the right people questions. You want to be able to ask people what is this money being used for.

You’ve got to be able to know who you can go to. During this meeting starting out it was very difficult. There were fits and starts. Who could testify? Who could not? Who would be here? Who would not? I was somewhat surprised that a lot had not changed from that fall meeting.

I questioned some of the appropriations. Did we really need to have a marketing guy on board now? I have to give credit to DNR - Marty Rutherford and Mark Myers - they were able to answer questions very crisply, very concisely. There is no doubt those two folks are on top of their game and I think it’s good for the state of Alaska that they are there.

But there are all these moving parts for a project that could cost the state $45 (billion) to $65 billion dollars. We are optimistically looking forward to having a gas line. It must be economical. Click Bishop made a statement that I think is something that really should be remembered. That is this: We should not be paying $65 million to make $45 million. We can cite the projects in Alaska where that has happened. We can go on and on.

We have to be very, very, very careful that what we are not doing here is one person’s dream. Alaska has also been used as a place to make dreams happen: silos, fish plants, etc.

When you’ve had a lot of money from a petro state with a small population, we’ve got a pattern of spending money on these things. We have to stress test these items going forward. Will this thing make money? The money going towards it, is that money being effectively used? Is it an absolute necessity to move this project forward? What happens if TransCanada is not bought out? That was explained to my satisfaction. I was very comfortable with severing the relationship with TransCanada. I had no problem with that. The case was made. It was made why they were brought in through the AGIA concept; it was made why it was time for us to go our separate ways. TransCanada would tell you they felt the same way.

Petroleum News: Well, they told several committees just that, didn’t they?

Dunleavy: Exactly. To me that move and that action, and that being on the call was appropriate. Less so with the appropriations through the discussions and through the week and a half of hearings, they were reduced somewhat in some of the areas after the departments had a chance to go back and look at what they were asking for. That was a good thing. If there are no questions asked then there is no pressure to perform and no pressure to scrutinize what you’re asking for. So the no vote was less a vote on what we had discussed. It was more of a vote on what needs to happen moving forward. It’s not to jump on any one person and the intent is not to beat up on the governor. The intent is the administration has to have an internal discussion as to who is in charge of what. Some of us used the Abbott & Costello routine: who is on first, I don’t know - third base.

I’m convinced as I sit here today that there are still elements of this project that do not know what their authority is, what their limitations are and who the go-to people are. When you bring a bill, the onus is on the administration to convince the Legislature of what they are trying to get passed. They made a good case - again no brainer in TC buyout. They made an OK case on the appropriations. I don’t have a lot of heartburn with the appropriations only because I think it will get us to the next gate. I wouldn’t want to short them on that.

But if this were a 20-0 vote, my concern is the administration would take that as everything is working well. It’s not. It’s not something that cannot be overcome. I thought it was going to be overcome in the fall. I’m hoping my statements and positions get it functioning so that the administration knows who do we talk to about marketing, you talk to this person; who do we talk to about pipeline size, you go to this person; who do we talk to on rolling in the state’s interest on in-state gas and offtakes in Alaska, you talk to Dan Fauske or the AGDC board.

I don’t see why we cannot get to that point. I don’t see why we have not, either. I think they will but I hope they take my words in the positive and not the negative to really work internally now before the regular session starts to get these issues fleshed out. I am more than happy to and I’m sure I will meet with elements of the administration on things I’m talking about today.

Petroleum News: What would you like to see done next? As you noted, there are a lot of moving pieces still, be it the constitutional amendment or PILT or RIK versus RIV?

Dunleavy: We have to get to the next gate to determine whether this is economical. Our partners in my opinion will let us know if this is economical. There may be others outside those three who believe the partners are playing games. I haven’t seen any evidence of that yet. If we stumble upon that, it will be a new ball game.

What I’m seeing is the big guy in those three companies - Exxon - we are seeing spend large amounts of money to move this project forward. Could they be spending large amounts of money as some type of gimmick or ploy? Maybe. I would tend to doubt it. I don’t think their shareholders would be thrilled about throwing money away. Who knows? It’s a possibility.

We’ll know when we get to the next gate if this is economical. It must be economical. A dollar put into this project must return at least a penny above that dollar. If it doesn’t we will have wasted resources that we cannot afford to waste in this time of fiscal crunch. At the same time we are talking about spending large amounts of money on the pipeline and we are talking about reducing large amounts of money in the budget. We’ve got to be careful with every dollar so the next gate is going to be very crucial to see if this thing has legs.

Petroleum News: Is there anything on your wish list to be considered next?

Dunleavy: They are the ones who will come to us. They are the ones with the dates and the benchmarks that have to be met. They will come to us. I hope they do it in a timely manner. I hope they do it with enough information with the folks who can come testify to explain to us and to Alaskans why we have to take actions on certain things.

In terms of what I want to see next, I’m not interested in micromanaging this project at all. That’s not the role of the Legislature. I just want to make sure we get to the next gate. This vote gets us to the next gate. I’m glad it does. I’m glad the bill is passing. It’s going to take us to that gate. Everyone is going to feel much better about where we are going, how we get there, how it’s going to happen as the administration gets its team working and all of its pistons firing.

Petroleum News: We know your concerns. Was there anything that pleased you about how things were run this session?

Dunleavy: This was a seven-day-a-week, 12- to 15-hour process and it should have been because it’s a huge undertaking. So I was happy with the due diligence that the Senate Finance Committee did with the information presented. Many of our Senate members not on Senate Finance were in the audience. Sen. Giessel, the chair of Resources, held meetings too. I was happy with the answers from the Department of Natural Resources. That information was very easy to get.

I don’t want to give the impression it was all negative. It wasn’t. For the most part it was positive experience. But again September was concerning. When you have a new administration and a new team, it takes a while to get up to speed when dealing with these huge items, so September concerned me greatly.

But I thought the issues there would have been addressed. It was recorded so it’s like a game tape. You can go back and look at the game tape. I don’t know if they looked at the game tape. That’s my concern. Perception is huge on this thing. You can’t leave anyone with the perception that you are stumbling along with a project of this magnitude.

Petroleum News: The Legislature has, even in explicit language, given the governor the benefit of the doubt or a honeymoon because he’s new and he’s got a new team from previous administrations. When does this honeymoon end?

Dunleavy: It’s got to be over now. When you say honeymoon, a lot of times people interpret that to mean we start whacking the governor. That’s not the honeymoon I’m talking about. What I’m talking about is practice time is over now. It’s game time now. No more fumbles. No more interceptions. Execute your plays. Make your block. Score a touchdown. This is game time and these games count moving forward. That’s where we were at.

I’m expecting a much higher caliber, concise, precise no question about who, what, when, where what. That’s why I didn’t argue strenuously against those appropriations.

Petroleum News: Let’s look ahead to next session. One of the things that will come before you is a consideration for a tax credit review at the very least. What are your thoughts on that?

Dunleavy: Nothing should be off the table. I know it’s a tired, worn phrase. But given where we are at, at times when you have a lot of money, you can paper over things and waste money. It’s never appropriate to do that. We have to look at the tax credits and look at everything - everything. You’ve got tax credits in Cook Inlet, tax credits on the North Slope and tax credits in an area we call middle earth. So tax credits in middle earth are being used in hopes there is commercial oil.

The information we have now suggests there aren’t Prudhoe Bays in middle earth. But what there may be, for example, are pockets of gas that could be used by communities to generate power and electricity and so forth. Those are important. Those tax credits will be looked at and discussed more and they need to be. Some of them may need to be changed. Some may need to stay in place and have sunsets; some that have sunsets may need to be moved ahead so they don’t sunset right away.

It all has to be done in what’s in the best interest Alaska. In some of these projects, a dollar invested needs to return at least a penny back to Alaska. If we are going to be asking folks to potentially reduce things like education, health and social services, skimp on our roads, nobody is going to have a tolerance for giving money away that doesn’t return money to the treasury so there will be some pretty deep and needed scrutiny of these tax credits.

Petroleum News: The governor felt that the money that was coming in from low oil prices compelled him to hold off on $200 million in tax credit payments in June. You weighed in on that at the time. What were your thoughts?

Dunleavy: Really, what that does is impact the small guys, the independents. Their balance sheets aren’t as large as the majors. So maybe they are leveraging themselves, investing in capital equipment to find oil for us. They are relying upon those tax credits to make their next payments to their creditors. That didn’t necessarily help the situation. My understanding is the Department of Revenue Commissioner Randall Hoffbeck kind of stepped in to help that issue with some of the lending institutions.

The governor said it’s sending a message making it a conversation piece. OK it certainly started a conversation. We were concerned that it could impact the ability of these smaller oil companies to find us more oil where the majors may not. The majors may find certain aspects of the Slope to be not necessarily economical or part of their business plan. But for the smaller independents that may be able to go in there and find pools of oil that we can get X-amount of barrels of oil a day. It helps Alaska.

Last year in the Legislature, the Senate Finance Committee was talking about with holding COLA for state workers. There was an argument that the state made a deal. There was some merit to that. Absolutely there is some merit to that. The same goes for telling a business. To tell them we’ll give you this if you help find that. To then change it, it’s the same thing. That causes consternation, that maybe Alaska does not keep its deals.

I think we got through that. I hope we did. Certainly this is not the time to drive investment away from Alaska - quite the opposite. This is the time where when companies ask where should we park a dollar, their first thought should be Alaska. So the goal of Alaska should be Alaska. Not Zambia. Not Brunei. Not Pakistan. Not Bolivia. If you’re an American company, even if you’re a worldwide company, the first thought should be Alaska.

Well why Alaska? Well because they have an investment climate that just is fantastic. I can’t say we have that right now. I can’t say we have that when we have protestors hanging off Shell rigs in Alaska. I can’t say that when we have countless - literally countless - environmental groups in Alaska fighting against development. I don’t think we have that.

The governor’s statement on gas credits I think didn’t necessarily promote Alaska as a place to invest. Certainly all of us need to keep that in mind when we make statements and put thoughts into place. The end of the world doesn’t consist with the borders of Alaska. People all over are watching what we are doing; they are reading about what we are doing. We will need investment to diversify this economy.

People have complained we have one source of revenue. They are absolutely right. We are probably the ultimate petro state in the country. You are not going to diversify the economy if you keep scaring people by constantly over spending, which means anyone who comes in here is going to be viewed as a host rather than a partner.

The environmental regulations scare people off making the process so onerous and arduous so they pull out. Shell alluded to low finds of oil, but the reality is there are more costs going into that. Part of that is the environmental costs, the regulatory costs. It just wasn’t worth it anymore.