Committee chair MacKinnon digging in

Anchorage Republican says Senate Finance Committee eager to determine if state can handle a larger stake in natural gas line project

STEVE QUINN

For Petroleum News

Sen. Anna MacKinnon is holding the gavel for Gov. Bill Walker’s request for nearly $150 million to boost the state’s stake in a natural gas pipeline project. As co-chair of the Senate Finance Committee, the Anchorage Republican says committee members have lots of questions for the Walker administration. Questions began in earnest Oct. 25 and will continue with hearings sometimes twice daily. MacKinnon gave Petroleum News some of her preliminary views on the special session and how it quickly became less continuous when Walker opted to withhold a bill on a natural gas reserves tax.

Petroleum News: Let’s start with the governor pulling the natural gas reserves proposal off the table. Does that help focusing on the TransCanada discussion?

MacKinnon: I think so. From a Senate perspective, it was going to require a lot of discussion to understand why the governor felt that particular tool was appropriate to advance a gas line project for Alaskans. I think there were a lot of questions and I think that we are pleased those questions are off the table.

Petroleum News: You had a pretty hearty first hearing with some incisive questions. I gained a sense some lawmakers wanted more information in advance. Do you feel like you should have had some material earlier?

MacKinnon: Absolutely. We had hoped and what we were led to believe was that we would get the bill in advance so that we could try to get some of what we considered some of the harder questions out front so that the administration would be ready to roll a bit more quickly instead of us rescheduling some additional meetings, which we had to do today.

So we’ll go forward. The administration for whatever reason needed more time to deliver the bill to us and so we’ll work with what they have done. There is the TransCanada buyout and then there is the dedication of funds to continue forward as the state as an owner.

It’s a straightforward request. There was some confusion today about the answers and the request. I think we will need to revisit that so the Legislature is very clear that the $30 million is one whole number divided by the partners at their percentage of ownership in the project. It’s additional money that all partners voted to agree on to answer the question - the state’s question specifically - of whether the pipe is the appropriate size.

The state asserts that we should financially check out the cost of a 48-inch line versus a 42-inch line. The governor of the state of Alaska has asserted that question. Steve Butt (of Exxon) during a project update meeting that we had said that this is the right time to ask those types of questions. That it’s early on in the project and that other partners might have other questions. To create alignment for all partners, if you have a question, you should be asking it now and not waiting past this particular stage to want to understand more of these complexities.

Petroleum News: So with that in mind, you don’t feel put off by the review of a 48-inch line versus a 42-inch line?

MacKinnon: I feel like the 42-inch line was already decided. This administration, at least it was said today by OMB Director Pat Pitney, believed that the 48-inch line was always something that was on the table for consideration. So they are pulling that lever, for lack of a better phrase, at what we heard today. I believe, and I’ll only speak for myself, that the decision was already made by our partners. In fact I think it was already made by AGDC.

I believe when we had the Denali project looking at a line and the TransCanada-Exxon group looking at a line going south under the AGIA proposal, that pipe was consistent with a 42-inch from two different pipeline projects. I could be wrong. That’s on Sen. MacKinnon. That’s my recollection that we had already been through this scientific journey.

But this is a new administration and a new team. They may know something that I don’t know right now. So there may be a reason why they are pushing to understand the dynamics of that decision as well as the complexities to see if there is value to the state of Alaska that is different from the other partners.

Petroleum News: So with that in mind and with some of the comments in the hearing, are you sensing in anyway a dismantling of SB 138?

MacKinnon: The Senate Finance Committee was very specific in that if the governor and his team would like to do something different, then the Senate Finance Committee, and I believe the Senate as a whole, is ready to understand what the project looks like and would like to see a blueprint of alternatives so we can be at the table, being the ones who write the check, and we are prepared to understand his ideas. He may be surprised that we want a pipeline for Alaskans just like he does and we want energy for Alaskans. The sooner we can get the questions answered, the better for everyone.

Petroleum News: Aren’t there expectations of change with a new administration? Isn’t that the nature of the beast?

MacKinnon: I think everyone wants to make projects their own. Even as a bill travels through committee, there are different perspectives in each committee that add value to the conversation. So yes, anyone would want to test and make sure that Alaskans are getting the best value for our investment. I think Sen. Micciche was the one who spoke to it today when he said what should the Legislature do to make sure that a new administration might not come back and try to reshape a project again and set the project in a more neutral and idling position and cost time as well as project delay dollars.

I hope I’m being clear in that it’s entirely possible that there is a new administration in the future that may want to do the same thing and so how does the Legislature support this governor in moving our project forward - Alaska’s project forward - and then once we are past this preliminary engineering and design or past pre-FEED, that someone doesn’t try to take us backwards.

I think we are cautious that if you want something, please bring it to us. We believed in a 52-8 vote that SB 138 was the right way to go, but I’m sure that the Legislature, having a few more years under our belt, might do something differently too, so we understand the administration wanting to take as second look at some of the decisions that are outlined in the state statute. To that end, I’ll be asking the attorney general (Craig Richards) to come and go through SB 138 and the requirements of the project.

I think I was clear today (Sunday, Oct. 25) in saying that is how Senate Finance is measuring will this particular buyout the governor is proposing of TransCanada move the project forward. Senate Finance wants a pipeline. We believe the governor of the state of Alaska can get us a pipeline; we believe in the partners we currently have. It may include TransCanada. It may not. But we have a project that is viable and this administration can get us across the line and into that construction. That’s what Senate Finance and the Senate is ready to do.

Petroleum News: The schedules for your committee are pretty well laid out, but what is your objective with this bill?

MacKinnon: There are multiple branches of government. The administration - or the governor’s office and his team - is one; the Legislature is another. Inside the Legislature, there are two independent bodies that have the fiduciary responsibility to review how we are spending money. The constitution of Alaska provides us that authority. So as we go through this, we are trying to make sure we ask the best questions that we know how. We expect and anticipate that the administration should be able to answer the questions. There are no gotcha questions that we are trying to put out there. They are questions that find relevance for the people of Alaska so they believe we have a project that is viable and can go to construction and can compete with other projects around the world.

Petroleum News: Is there anything that you want to learn from the administration that may be outside the scope of SB 3001, but can still help you lay some groundwork for the upcoming regular session?

MacKinnon: All of us are a bit anxious. We want a pipeline. I think it was apparent that we were asking OMB Director (Pat) Pitney questions that others might have the answers for and she didn’t have the answers. So we look forward to others on the team providing those answers. We need a budget that we have confidence reflects what the administration is going to do with the money. We want to know do you want to change SB 138? If you do, let’s talk about that. Let’s talk about the pros and cons of what you might want that’s different and let’s see if we can find agreement.

As far as the partners go, I would love to be at the bargaining table. I’d love to learn about different things.

At this job and this position, you learn something new every day. It’s exciting. Sometimes it’s frustrating. It creates roadblocks. The more you know sometimes the more you figure out why you can’t do something as opposed to why you can because currently there is a state statue that doesn’t allow you to do it or there is government ruling or a court ruling that doesn’t. So understanding some of those challenges is an opportunity to learn more so you can build better projects.

I’d like to be able to convey in simpler terms a message to the public as to why this is a good idea. I have constituents who believe the state of Alaska shouldn’t have an equity ownership portion of this project at all. So it’s my responsibility to explain to them the reasoning why it makes the project more probable.

Petroleum News: Is there anything not on the call you would have liked to have seen?

MacKinnon: Of course. We have a list of items that we had anticipated would be on the call. The payment in lieu of taxes is part of the fiscal that our partners have said is necessary for them to ask their corporate board rooms to invest billions of dollars in our project. They need what is being termed as fiscal certainty for a stable budget so they can understand their costs. That’s why this project under SB 138 is shaped as an integrated project that the ownership interest we have in the project is also how we will profit from the project. We are in it together to try to make it a project for all Alaskans. We all will benefit if this project is successful and we benefit to a degree if this project is successful.

Petroleum News: Speaking of the producers. The administration gave a two-hour briefing and the attorney general closed it out saying he didn’t believe the producers were in alignment. Do you see it that way?

MacKinnon: Well the attorney general again may have more information than I do. I don’t know if he’s part of the gas line team in the sense that he is at the bargaining table with the producers to see different producers wanting different things. I’ve said this before and I’ll say it again, the A-team is in Alaska from Exxon, ConocoPhillips. If you look at their resumes, these are the people who bring in projects for some of the most successful companies in the world.

These are the people that Alaskans want to be partners with.

If one of our partners exits the system that is when the state of Alaska will be looking hard at the numbers that particular company might not think this particular project is the best for them to invest in now.

That said, I would like to footnote, we were told by enalytica, the Legislature’s analysts, that of course the partnerships change over time because interests change. But right now I believe we are in alignment. Right now there are some heavy negotiations going on that the governor believes need to be going faster.

That agreement would be the gas balancing offtake agreement as one example of trying to bring parties together. Just because people aren’t saying yes to a particular agreement that might be offered by one of our partners, doesn’t mean there is misalignment. They are working under the principles of their own organization and what they believe is the best to make this project successful. That is not misalignment; that is negotiation.

Petroleum News: Do you want to hear from the producers at all this session?

MacKinnon: If the gas reserves tax were still on the call, the producers would certainly be in front of the Senate Resources Committee or both legislative resource committees to offer their perspective on the advantages or disadvantages of the reserves tax.

With that off the call, this is an appropriation issue. Our partners are delaying moving forward with asking their corporations to see whether the state of Alaska will step up and appropriate for our portion of the partnership. Should the Legislature agree with that, that’s step one. I’m sure our partners will want to know who is in charge then, who will be casting a vote for the state of Alaska. The Senate Finance Committee is interested in that.

We have an approved budget, which I believe AGDC has the authority under a confidentiality agreement to speak to the Legislature. That’s the only way right now that I see the producers involved. They are an arm’s length away and they are waiting to see if the state’s board of directors are going to approve the funding.

So I’m not sure what was meant by the attorney general’s comments. With all due respect to the administration, they are frustrated with the time and pace of achieving signatures on some contracts that are crucial to some decisions that we need to make. So I’m giving deference that is the reason. With that in mind and giving them benefit of the doubt that it is the reason they are waiting, they are using every leveraged piece to benefit Alaskans that is in front of them.

Should that be supported in the testimony that the Legislature receives, then we will use that information to measure whether we want to approve the budget that the partners are asking of each other or whether we will say no. It’s certainly our opportunity to not be involved in this project.

Petroleum News: As you look at this bill and look at the expenses, do you have any concerns about any of them?

MacKinnon: I’ll be interested to hear from the Department of Revenue and AGDC concerning the marketing component. There have been some press statements from the governor’s office regarding marketing. I believe a joint-venture marketing provides the state the best possibility of reaching markets we may not be familiar with and with certainty and from people who have been in those markets for years.

For example, ConocoPhillips for over 30 years exported to I believe Tokyo Electric, so we have a partner producer that has had a marketing agreement that has been very successful and always with on-time deliveries. So I’ve heard that Alaska is talked about favorably in Asian markets because of ConocoPhillips, a positive relationship in that market. So I think potential buyers in the Asian market are looking to that, so ConocoPhillips and a joint marketing venture with them seems to help with the state of Alaska. That may be a possibility with BP and it may be a possibility with ExxonMobil.

And so my question will be specifically what do we expect to receive from that marketing team? I’m just not sure what that $10 million holds. I’m sure we’ll learn more from the attorney general and his budget advisors what do we get for our $10 million? Marketing is a concern because currently under SB 138, the constitution of the state of Alaska has DNR in charge of ensuring for the people of Alaska the wellhead value, so there is a rate of return on our capital investment available to us and TransCanada right now in our partnership on the gas pipeline and the gas treatment plant.

I’ve always said we should own more of the pipe because if we owned the pipe, then we have a project and we have firm shipment commitments. So you have a project if you own the pipe - period. So I don’t see the pipe as much of a risk as developing an LNG plant at the end of the chain. We’ve watched Australia and other LNG facilities have huge cost escalations. Our partners who are in this, global partners, were actually in those projects that had cost overruns. So we have the benefit of that expertise and that experience.

Petroleum News: So you’ve got all these variables - plus others - to consider and no reserves tax. Do you see this special session being more cordial with the focal points being narrowed?

MacKinnon: There would have been a lot longer conversation so I think it’s less contentious. I hope people saw today that the Senate is genuinely trying to support the governor. He is the one who can deliver a project to Alaskans. We are not trying to gotcha anything. We want a gas line project. We want to monetize that. We want a pipeline to energize Alaska. We hope we’re here for a shorter amount of time with the gas reserves tax off the table.