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City of Valdez commits $100,000 toward North Slope gas pipeline Working in conjunction with other local governments along the proposed pipeline route, cities form a port authority to lead the charge Pat Lynn The Valdez Star
The city of Valdez, always known for thinking big and with money to burn, took a giant leap into the energy business in late June.
By unanimous vote, the city council plunked down $100,000, for starters, toward the building of a natural gas line from the North Slope to tidewater at Valdez.
Working in concert with three, perhaps four, other local governments, the council voted 6 to 0 to form a port authority to lead the charge.
Each of the communities, including the Fairbanks North Star Borough, the Arctic Slope Borough and the Municipality of Anchorage, are expected to pledge an equal amount of money.
With $400,000 dollars in the bank, the Gasline Port Authority will rent office space, hire a staff, retain attorneys and lay the ground work for a gas line paralleling the existing oil pipeline.
As part of the deal, the city council also agreed to retain the legal services of O’Melveny & Myers, a New York/Los Angeles law firm that specializes in energy-related legal issues.
The port authority’s most critical role would be the issuance of tax-free revenue bonds to finance construction of the line, negotiating with BP and other oil companies to sell their gas, and lining up buyers abroad.
Terminal bonds It’s an ambitious undertaking with an uncertain future but not totally unprecedented in Valdez. In fact, it was Valdez that issued tax-free and risk-free revenue bonds, to the tune of $2 billion, way back in the 1970s for construction of the Alyeska marine terminal.
Valdez received a fee for issuing those bonds with the fee rolled over into the city’s Permanent Fund with totals $63 million today.
The infamous Valdez grain elevators, now a white elephant, were similarly financed to the detriment of the city.
The planned natural gas line is an ambitious undertaking with an uncertain future that will be closely watched in Alaska and nationwide by the leading oil companies, particularly BP which will soon own most of the North Slope natural gas reserves once it swallows up ARCO in an expected merger.
Gas line discussions between the mayors of the cities and boroughs have been under way for the last 18 months.
BP/ARCO merger They heated earlier this year when BP announced it would merge with ARCO. The merger is seen as a blow to gas line promoters since ARCO is actively pursuing studies to determine the feasibility of a natural gasoline.
BP, on the other hand, has displayed no such interest publicly, and has declined to join an ARCO-led study group.
The gas line promoters got some support from state representative Jim Whitaker (R- Fairbanks) who authorized a bill calling the state to build the line.
In recent weeks, the resolve of the city and borough mayors resulted in an agreement to form a port authority which would have many of the benefits enjoyed by cities and boroughs: the authority to issue tax free bonds, an exemption from taxes, the right to acquire property through condemnation, etc.
Valdez Mayor Dave Cobb is the spark behind the municipally owned gas line idea. He described the formation of a port authority as “a golden opportunity.”
Councilman Mike Williams agreed, calling it “a boon for the whole state.”
Still, said the mayor, there are key people to bring on board, namely Gov. Tony Knowles who has been non-committal on the idea of a publicly financed gas line project, and BP which will soon own most of the North Slope reserves, and the leadership of the state Legislature.
“We need a face-to-face with the governor,” said Mayor Cobb.
“You can get him at the theater conference,” said councilman Chrystal, referencing the governor’s recent appearance at the Valdez Civic Center .
“No, he’s pretty slippery. There’s a certain protocol you have to go through,” replied the mayor.
Councilwoman Dorothy Moore was a little miffed by the aggressive stance taken by the law firm of O’Melveny & Meyers which have been party to the talks in recent weeks.
“Why did they want to go so fast?” she asked. “I don’t want something coming up and blind-siding us. Why did they make me feel like a second class citizen in all of this?”
Nevertheless, she said she stands in favor of the project.
The law firm, she says, has been pushing the project to meet an anticipated demand by Asian countries for natural gas supplies to fire energy plants that are converting from coal to diesel.
The numbers In recent discussions, all sorts of numbers have been flying about without much credibility. The mayors say, for example, that a natural gas line could be constructed for as little as $9 billion compared to $12 billion or more for private companies.
That’s because the port authority would be exempt from paying heavy state, local and federal taxes—the very costs that bump up the cost of a privately financed project.
When and if the gas ever gets flowing down the line, the mayors say (without much justification) that the annual revenues could range from $360 million to $2.8 billion.
Under a profit sharing plan worked out among the mayors, the gas line municipalities would receive 2 percent of the revenues in lieu of property taxes.
The lion’s share, 60 percent, would go to the state, and 30 percent would go to community revenue-sharing statewide, and 10 percent would be retained by the port authority.
Additionally, the state would retain its 12 percent ownership of the natural gas and receive severance taxes from the oil companies.
City attorney Bill Walker issued a word of caution when the discussion of the numbers came up. “These numbers are arbitrary,” he cautioned. “They can change.”
Next step in the Gasline Port Authority drama is to await action by the Fairbanks North Star Borough, the Arctic Slope Borough and the Municipality of Anchorage to join the partnership.
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