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Alaska municipalities want natural gas, too Cities will push for local distribution as part of North Slope gas line project Larry Persily Petroleum News Government Affairs Editor
Municipal officials advising the state on negotiations for a proposed North Slope natural gas pipeline to serve hungry out-of-state markets want to make sure some of that gas is available for local distribution statewide.
They also want to ask for affordable tariffs for taking gas off the main line for their communities; no reduction in municipal tax revenues from the project without “appropriate justification”; and state incentives for the project developer to hire Alaskans.
The municipalities are drafting a resolution to help guide state officials as Alaska negotiates a fiscal contract with potential private developers of a multibillion-dollar pipeline to carry North Slope gas to North America markets. The contract, under the Alaska’s Stranded Gas Development Act, allows the state to negotiate a long-term deal for a schedule of more predictable payments in lieu of possibly changing state and municipal taxes over the life of the project.
Separate from contractual payments in lieu of state corporate and production taxes, the big issue for communities is what the contract might provide in lieu of municipal property and sales taxes.
The Stranded Gas Act does not give the municipal group veto power over the state-negotiated contract.
The municipal advisory group to the state’s negotiating team met April 30 to review its draft resolution. Much of the discussion dealt with the provision that asks the state to ensure the project contract includes plans for making gas available to communities statewide. In-state distribution a key concern “The main thing to me is they think about us right up front,” said Willard Dunham, a Seward city council member representing his community on the municipal advisory group. Provisions for off-take points and local distribution statewide should be explicit in the contract, Dunham said. It would be much less expensive to include the connection points and extra lines as part of the original construction rather than adding them later, he said.
“I just have a fear … if we don’t tie in the supply to the Southcentral area … we won’t be able to get the gas,” Dunham said.
Southcentral Alaska residents — especially the Kenai Peninsula that depends on the Agrium Inc. fertilizer plant and the ConocoPhillips Alaska/Marathon liquefied natural gas plant — worry that dwindling Cook Inlet natural gas supplies could cut deeply into their economies by the end of the decade.
The municipal advisory group is scheduled to meet May 21 in Anchorage to continue working on its resolution to the state. Members include municipalities along the proposed pipeline route and communities that could serve as ports of entry for construction materials: the North Slope, Fairbanks North Star, Kenai Peninsula and Haines boroughs; and the cities of Fairbanks, North Pole, Delta, Anchorage, Seward, Kenai, Valdez and Skagway. The Tanana Chiefs Conference, representing 42 Interior Alaska villages, also is listed among the members. Consultant helping municipalities The Alaska Department of Revenue last month signed a $250,000-contract with Fairbanks-based Information Insights Inc. to prepare a study of the pipeline project’s potential social and economic effects on the communities. The contractor also is leading the municipal advisory group in drafting its resolution of positions and a final report to state negotiators, expected in August, said Brian Rogers, company president.
The report will include municipal recommendations for the Stranded Gas Act contract, Rogers said.
State officials hope to reach a contract before the end of the year with at least one of the project applicants, if not all of the applicants.
Applicants include a single submission by the three major North Slope producers, ConocoPhillips Alaska Inc., BP Exploration (Alaska) Inc. and ExxonMobil Alaska Production Inc.; and the Alaska Gasline Port Authority, comprised of the Fairbanks North Star Borough and city of Valdez that want to build a municipally owned project. The state also expects applications soon from two Calgary-based pipeline operators: TransCanada Corp. and Enbridge Inc.
Any one of the applicants could build the pipeline by itself, or any combination could join together to develop the project. A Stranded Gas Contract is not a commitment to proceed with construction but simply a fiscal contract governing the project if it goes ahead. In-state tariff also a concern In addition to a provision ensuring in-state gas distribution, the municipal advisory board’s draft resolution calls for a fair tariff structure for delivery to in-state points. Members discussed their belief that gas withdrawn from the pipe in Alaska should pay a lower tariff than would be charged for gas carried the entire length of the line to Canada.
In addition to ensuring an affordable tariff, Rick Ross of the city of Kenai asked if the state could exert any influence on the price of gas sold in-state, especially for industrial use. Kenai would lose a major chunk of its economic base if either the fertilizer or LNG plant closed due to lack of gas supply.
Members discussed whether the state could direct the sale of its royalty gas at a discount for in-state industrial uses, prompting Deputy Revenue Commissioner Steve Porter to explain that would be the equivalent of taking money out of the general fund for one area of the state.
The advisory group did not include an in-state natural gas pricing provision in its draft resolution. Boroughs protective of property tax revenues In their concern to protect property tax revenues, the municipalities state in the draft resolution:
• They will not accept any negotiated reduction or deferral in municipal property taxes unless the state and project sponsor can show such a tax break is justified.
• They want to ensure that some level of property tax revenues would continue after the end of the contract, even if it is beyond the original expected life of the pipeline.
• And they want the state to ensure that the municipalities’ combined (present value) share of project revenues negotiated under the Stranded Gas Act contract would not be less than the cities and boroughs could have collected under their existing tax laws.
A 2002 report from the Department of Revenue estimated that a gas line carrying 4.5 billion cubic feet per day from the North Slope to Midwest markets could generate, under existing property tax laws and rates, more than $1.3 billion each for the North Slope Borough and the state over 35 years, with about $170 million for the Fairbanks North Star Borough.
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