Hawker seeks new powers for AGDC

Legislation would authorize Alaska Gasline Development Corp. to develop in-state gas pipeline, provide access to $200 million

Stefan Milkowski

For Petroleum News

Legislation giving the Alaska Gasline Development Corp. a wide range of powers to develop of an in-state natural gas pipeline moved out of the House Resources Committee Feb. 27.

While House Speaker Mike Chenault is the prime sponsor of House Bill 9, Rep. Mike Hawker helped convert the bill from a two-page placeholder into comprehensive legislation spanning 21 pages. The new HB 9 authorizes AGDC to enter confidentiality agreements, exercise eminent domain, determine a pipeline financing structure, and issue bonds. It specifies that the line can operate as a contract carrier, details how the line would be regulated, and creates a gas line fund for legislative appropriations. According to Hawker, the only remaining step would be to appropriate money to the project.

Hawker says the bill is not meant to hinder other pipeline plans — he says his hope is to find alignment between AGDC and the Alaska Gasline Inducement Act project.

Petroleum News spoke with Hawker on Feb. 28.

Petroleum News: You recently described your office as the “techno junkies” behind HB 9. What was your role in shaping the legislation?

Hawker: I have been working with Speaker Chenault since HB 369 moved through the House Finance Committee (in 2010) on the vision of brining an in-state natural gas line to fruition. My office staff and I worked with Speaker Chenault throughout the summer developing the concepts that are now incorporated in HB 9.

In my office we tend to focus on the details — of regulation, contracting — and Speaker Chenault has been very instrumental in making sure we maintain a clear and appropriate vision.

Petroleum News: The new version is a complete overhaul from the bill introduced last year. What are the highlights?

Hawker: The bill that was introduced last year was a placeholder, a piece of legislation in the system that we could evolve after AGDC delivered its project plan on schedule in July of last summer.

The bill speaks for itself. It recognizes the existence of AGDC as an entity. It evolves the process from the Joint In-state Gasline Development Team created in HB 369, and it provides AGDC with the necessary authorities to go forward and represent the state’s interest in the continuing efforts to develop an in-state natural gas pipeline.

It empowers that entity to move forward and develop a project on its own. And it empowers AGDC to become a partner at whatever level might be determined appropriate in a pipeline developed under the AGIA framework.

Petroleum News: Are there individual provisions you would describe as most important, or do you see the bill as a package?

Hawker: It’s really an omnibus empowerment package, all of the provisions of which are necessary.

Petroleum News: Why push an in-state line?

Hawker: Because Alaskans deserve Alaskan gas.

Petroleum News: Have you given up on a large-scale pipeline?

Hawker: I’ve been on record for a long time saying AGIA was going to become another one of those failed dreams of Alaska politicians, and I believe it most certainly has.

Petroleum News: Do you expect an in-state line would also export gas?

Hawker: It’s inevitable. The in-state consumption of gas is a relatively small amount, and in order to have anywhere close to the necessary economy of scale, there will have to be some export component.

Petroleum News: What happens if the governor finds alignment with producers on a line to Valdez?

Hawker: The governor very clearly stated he wanted to see alignment occur with the producers under AGIA with AGDC as a player, and that the line would terminate somewhere at tidewater. The governor has never stated he was committed to Valdez as a necessary terminus.

However, it certainly remains a very viable option in the planning process.

Petroleum News: Do you see a big difference between the governor trying to operate under AGIA and you trying to empower AGDC?

Hawker: These are not competing projects. These are simultaneous efforts that are going to converge in a single project. There’s only going to be one gas pipeline in Alaska.

I think the fact that the governor has been discussing an amendment of the AGIA project plan, bringing it into alignment with the AGDC/ANGDA project plan, is absolutely the desired outcome. It means we’re accomplishing our mission.

Petroleum News: The bill authorizes AGDC to issue bonds, and to build and operate a pipeline. But you and Chenault have both said it doesn’t sanction a project. What would still need to happen before a pipeline gets built?

Hawker: The bill does not grant AGDC the authority to spend state funds. Any expenditure of state funds necessary to move a project plan into the construction phase is going to have to come back to the Legislature for appropriation. That’s a constitutional mandate.

Petroleum News: Would AGDC need further approval to spend the $200 million appropriated last year?

Hawker: That money was already appropriated, but it was appropriated subject to establishing a fund through which it could be managed and accounted for. As soon as that fund is created, that money becomes available to move a project plan forward.

Petroleum News: Would an in-state line require a state subsidy to provide gas at attractive prices?

Hawker: It’s my personal belief that a properly structured Alaska pipeline project that has both an in-state component and an appropriate export component can be economically viable operating in the free market without a state subsidy.

That said, it will be a policy call before the Legislature to evaluate the degree of state investment desirable, because there is an absolute direct connection between state investment and tariffs. The more state investment, the lower the tariffs.

Petroleum News: Going back to the question of sanctioning a project, if AGDC decides it doesn’t need any further state investment, would it be able to sign contracts, get permits, and go ahead with a project?

Hawker: That would be the vision of this bill. However, the likelihood of AGDC moving forward with a project that would not require any additional appropriation is highly unlikely.

Hawker: Absolutely. But that would involve a 100 percent debt-financed project, and that just would never be the case.

Petroleum News: There was concern in House Resources over exempting the pipeline from RCA regulation. Why isn’t regulation needed for setting tariffs?

Hawker: The bill does not exempt the project from RCA regulation. It provides the interface between the existing regulatory authorities. In that this pipeline project is envisioned to be a contract carrier, it automatically is not subject to current RCA pipeline regulation. We make that point very clear for a project in which AGDC is invested.

However, exclusion from regulation as a public utility — that only exists as long as the project is controlled by AGDC, which is a state agency. It’s basically saying that a state agency is not subject to oversight by another state agency in this case. If the project becomes controlled by any other party, it falls back under regulation under the public utilities act.

Petroleum News: What was the purpose of the amendment adopted yesterday in Resources?

Hawker: It specifies the conditions under which the project would be regulated as a public utility, and it specifies that regulatory structure.

Petroleum News: As I understand it, the RCA would get to review the contracts the pipeline enters with shippers.

Hawker: That amendment mandates that contracts (between utilities and) an AGDC pipeline are necessarily submitted and reviewed for reasonableness by the RCA.

Likewise, at the end of the day, all contracts between utilities that might be acquiring gas from this project and their consumers remain completely and totally regulated by the RCA.

Petroleum News: Would the project need a certificate of public convenience and necessity?

Hawker: At the moment, the way we’re structuring this, it does not require a CPCN if it is controlled by AGDC, the theory being there is a presumption of public convenience and necessity by the fact that it was legislatively determined to be in the public interest. We don’t need a second level of determination by the regulatory commission second-guessing the Legislature.

That said, there may still be a role for regulation in that process that we’ll see developing as the bill moves forward.

Petroleum News: Why move ANGDA under AGDC?

Hawker: ANGDA is not moved under AGDC. ANGDA and AGDC will be sister companies sharing a common board of directors. ANGDA does not become controlled by AGDC.

In this process, there is a bright line that must be maintained between owners of pipeline projects and those who ship on pipelines. Our legislation structures ANGDA to be the shipping entity, the entity that markets Alaska’s gas — our royalty gas and whatever other gas might be appropriate. AGDC is simply the construction company that gets the project built. What we’ve done is created synergy between those two companies with both having an equally important role in delivering Alaska’s gas to market.

Petroleum News: A lot of Alaskans are big fans of ANGDA and the mandate it was given through ballot measure. What do you say to them?

Hawker: Well, has anyone seen ANGDA actually accomplishing its mandate?

What we see here is a process that has moved forward under best management practices and truly has a viable project that is moving forward to commencement of construction. ANGDA had a list of assignments to accomplish within one year of it being formed back in 2003, and respectfully, they haven’t accomplished many of those. Under this management structure, they are poised to accomplish many of their missions.

Petroleum News: The Legislative Legal Division says limiting judicial review raises a due process issue. Is that a critical part of the bill?

Hawker: Limiting the judicial review opportunity to those who have stakeholder interest in the outcome of the project is the same protection that TAPS originally received. Looking at the need to move this project forward as expeditiously as possible, we felt those same protections were appropriate.

Petroleum News: And you think it will stand up to legal muster?

Hawker: Absolutely.

Petroleum News: Rep. Eric Feige, one of the Resources co-chairs, voted against moving the bill because he said the pipeline would bypass communities in his district. How do you expect to win statewide support for a project that mainly serves Fairbanks and Anchorage?

Hawker: This project, as a backbone bringing gas from the North Slope to tidewater, provides the basis for serving all areas of the state. Without a backbone, there is no way for anyone to receive the benefits of Alaska gas. This project is the beginning of bringing Alaska gas to Alaskans.

Petroleum News: Is HB 9 needed this year?

Hawker: Absolutely. We need to move this project forward through its continuing development stages. The empowerments in HB 9 are mission-critical to taking those next steps.

Petroleum News: You’re also a cosponsor of HB 142, which had one hearing in early February. What’s in the new version?

Hawker: HB 142 is the legislation that would require the State of Alaska to consider whether the AGIA project is not economically viable, and if it is not economically viable, to exercise our options to terminate the state’s involvement.

The (version) introduced this session simply updated the dates to reflect that it did not pass in the prior year.

Petroleum News: And will you push HB 142 this year?

Hawker: It’s a very important tool that we have as we move forward. I would frankly like to see the AGIA project take the alternate course of action, which is redefining their project as the governor has suggested into an in-state pipeline project brought into alignment with our own in-state gas development efforts.

Working under AGIA would be the most desired outcome for everyone.

However, if for whatever reason it becomes apparent that is not a viable course of action, then I think it would be very appropriate for the Legislature to direct the administration to consider terminating involvement in AGIA.

At the moment, I don’t see that as a necessary course of action, nor do I see it as the desirable course of action.

Petroleum News: So that bill is on hold to see what happens in the next few months?

Hawker: Yes.

Petroleum News: How likely is it that HB 9 will make it through the Legislature this year?

Hawker: I think it’s assured of getting through, because the Legislature wants to move forward on Alaska gas line projects.

Petroleum News: And if it doesn’t get through, what happens?

Hawker: Well, that’s just an unacceptable outcome.