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Legislature ponders TransCanada buyout Administration recommending this to consolidate state’s voting position on AKLNG, save state money over ‘banking’ with TransCanada KRISTEN NELSON Petroleum News
The Alaska Legislature has been in session daily since the special session gaveled in Oct. 24, hearing Walker administration officials and experts on the issue of the state buying out TransCanada’s position in the Alaska LNG Project.
TransCanada, under a 2014 agreement with the Parnell administration, holds the state’s share of the project in the North Slope gas treatment plant and the pipeline, and is providing funding for the state’s share of work.
If TransCanada continues to hold the state’s share, it will repay TransCanada through a tariff once the project goes into operation.
The Alaska Gasline Development Corp. represents the state in the liquefied natural gas portion of the project and provides the state’s share of funding for work on the LNG plant, estimated to be about 50 percent of the total project cost.
The state holds an estimated overall 25 percent interest in the project, based on its expected 25 percent share of natural gas, through royalty and gas in lieu of production tax, but TransCanada acts in the state’s stead on 12.5 percent of that share.
Off ramp at end of year The 2014 precedence agreement between the state and TransCanada provided what the Walker administration calls a “clean” off ramp for the state at the end of this year: If the state buys out TransCanada by reimbursing it for its expenses to date in the pre-front end engineering and design portion of the project by Dec. 31, the state can take over that role in the GTL and pipeline portions of the project.
The authority to make that decision lies with the administration, specifically with the commissioner of the Department of Natural Resources, but the Legislature has to fund both the buyout and the state’s participation through the end of pre-FEED.
There is also a project deadline. The state has until Dec. 4 to provide funding for the state’s portion of AKLNG through the end of pre-FEED.
Pre-FEED, previously expected to wrap in early 2016, is now expected to wrap by the end of that year. At that point all parties would have to commit to move into FEED.
The administration said the change in schedule was due to a combination of factors, including some work being moved from FEED back into pre-FEED, more investigation for some issues and a response to the administration’s desire to see a 48-inch line, rather than the 42-inch line which is the current basis for planning.
Department of Natural Resources Commissioner Mark Myers told Senate Finance that the 42-inch line is optimal for just known Prudhoe Bay and Point Thomson natural gas, while the state wants to see the larger line to open the North Slope basin for more exploration.
Funding issue The Legislature is being asked to vote on funding to buy out TransCanada, and to fund the state’s remaining share of work through the end of pre-FEED.
Office of Management and Budget Director Pat Pitney told Senate Finance that there are anticipated changes to the scope of pre-FEED work which increase the budget (for all parties) by $182 million to $694 million. The state’s share of the new total is $173 million, consisting of $66 million for the LNG plant and $107 million for midstream, the gas treatment plant and the pipe.
Scope changes include $57 million for optimization, work sometimes done in FEED which has been moved back to pre-FEED; $66 million to accelerate regulatory and pre-bid work on FEED contracting; $29 million to increase the scope of geotechnical and geohazard work at the GTP and LNG plant sites and to complete weather-delayed offshore field work; and $30 million to bring deliverables on the 48-inch pipe up to the level of work done on the 42-inch line.
The state’s cost to buy out TransCanada would be $68.4 million and its cost to pickup remaining cash calls for pre-FEED would be $29.6 million - monies that TransCanada would provide were it still acting for the state in the midstream portion of the project.
The state’s share of midstream scope changes is $31 million and allowance for AGDC downstream scope changes if $15 million, for a total to the state of $144 million.
Senate Finance concerns Legislators have expressed concerns over who heads the project for the state and on the availability of information. Both of those issues boiled over in Senate Finance Oct. 28 when an AGDC presentation didn’t include its president, Dan Fauske.
Co-Chair Anna MacKinnon, R-Anchorage, begin the hearing by asking: “Where’s Dan Fauske?”
Joe Dubler, AGDC vice president of commercial operations, said he and Frank Richards, vice president of engineering and program development, had been asked to present.
Dubler said he wasn’t given a reason, but that Fauske was asked not to present.
Fauske had been online for an AGDC presentation to House Finance Oct. 27, and had apologized for not attending in person, but was not initially online at the Senate Finance Committee hearing, spurring MacKinnon’s question, Dubler’s response and the brouhaha which followed.
MacKinnon said after a short recess that she had been informed that Attorney General Craig Richards was managing the special session on behalf of the governor.
After a lengthier recess MacKinnon said the governor’s chief of staff had assured her, co-Chair Pete Kelly, R-Fairbanks, and Senate President Kevin Meyers, R-Anchorage, that the administration was trying its best to present the project to Alaskans. She said they had been assured that there would be a response to questions from the Legislature, and that the attorney general would appear to answer the committee’s questions.
The attorney general Attorney General Craig Richards told the committee he had been asked to coordinate presentations and referred the committee to an Oct. 14 letter from Gov. Bill Walker asking the attorney general “to manage all written communications with the legislature until the conclusion of the special session.”
The letter asked the state AKLNG team to “please send any written correspondence, presentations, or other materials to the Attorney General for approval before they are shared outside of the State AKLNG Team.”
The governor also said in the letter that all members of the state’s AKLNG team who would be testifying at the special session should plan to be in Juneau by Oct. 21. “We will use this time prior to the start of the special session for team planning and preparation,” the governor said.
Richards said that in his role as legal counsel to the administration he had recommended that those who did the presentations to the Legislature be present in person, and that presenters be those technically prepared to go through the PowerPoint presentations.
But, he said, there were no restrictions on answering questions.
He told the committee that AKLNG required the state to act more like a commercial entity and said he thought it would be fairly irresponsible if the governor didn’t direct that materials to be presented at the special session go through an attorney before presentation. He said the governor’s decision to have attorneys review materials was appropriate and said he’d fulfilled that role for hundreds of witnesses during his career.
‘Legalistic administration’ Sen. Peter Micciche, R-Soldotna, asked Richards if he asked some individuals not to testify. Richards said that fell under attorney-client privilege, but that he’d been told he could go into it. He said those to be presenting were requested to be in Juneau Oct. 21 and stay in Juneau during the session.
Micciche said he suddenly sees “a very legalistic administration” with a firewall between legislators and the people they’ve had access to. He said he didn’t want an attorney in the way of getting non-confidential information.
Fauske and other members of AGDC management were available online to answer questions when the AGDC presentation was given.
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