Egan says special session lacking substance

Juneau Democrat believes a letter from the governor less than one week before special session begins still not nearly enough detail

STEVE QUINN

For Petroleum News

Sen. Dennis Egan got to the Legislature just in time for it to gavel out in 2009, accepting an appointment from Sarah Palin under a brokered compromise. By then TransCanada had been awarded a license to advance a natural gas pipeline project with assistance from the state up to $500 million.

Now, the Juneau Democrat is around to cast a vote on whether the state should sever ties with TransCanada in exchange for a larger share of a large-diameter gas line that would run from the North Slope to an LNG export facility in Nikiski.

How he’ll vote in the fall special session remains unknown - even to Egan - who laments that just a few days before the Legislature was to gavel in, he’s learned little about what is driving Gov. Bill Walker’s decision.

“We still don’t know anything,” Egan said placing emphasis on the word, still. “Just what he wants to do, but not how he wants it done.”

Egan’s memory of the state’s wishes for a gas pipeline date to statehood while most in the Capitol recall - sometimes bitterly - efforts from Frank Murkowski, Sarah Palin and Sean Parnell.

Still, as progress on a large-diameter line seems to lag, Egan believes regions like Southeast are smart to pursue their own energy solutions such as one brought to Juneau by utility firm Avista, which proposes bringing liquefied natural gas from British Columbia to Juneau.

Egan spoke of these developments to Petroleum News a few days ahead of lawmakers gaveling in for the much-anticipated special session.

Petroleum News: As you think back to the time you’ve lived here and in Valdez, what are your earliest recollections of building a natural gas pipeline?

Egan: Oh wow. Well, just after statehood, there were discussions about a gas line, especially when oil was discovered. Then of course, they found reserves in Cook Inlet. There was discussion way back when. I don’t know the exact years, but it was in early statehood with Chevron at the time. There were fields in the Kenai Peninsula and on the Slope, then of course we had our lease sale in 1969 and garnered $800 million plus in lease sale dollars. It went off. All of the sudden they were drilling for more oil and they found gas. All of the companies have held that in reserve. They did a lot of flaring in the early days.

But yeah, it’s been talked about ad infinitum. People have had hopes, high hopes and extinguished hopes. Now here we are talking about the buyout of TransCanada and how much of the pipeline we want to own, then there is a new cog thrown into the mix: a gas reserves tax. I don’t know if that is going to go anywhere or not.

I saw quotes from the president of the Senate saying 10 days to two weeks and he thinks we’ll be out of here. If we are going to be 10 days to two weeks and out of here, there is going very little discussion on gas reserves tax.

Petroleum News: Let’s continue with that topic. That was attempted once before you were in office. So what are your thoughts on it? Is it a good idea? Does it warrant a special session?

Egan: In fact my dad’s administration looked at it. It didn’t go anywhere way back when. The majors weren’t doing anything about it. They were just either flaring it or keeping it in the ground. But I think it’s something that warrants discussion.

I’m not convinced now that we are going to get it done in special session because we don’t even have a presentation from the administration yet. We have a letter from the governor yesterday (Oct. 19) but that’s about all that we’ve heard, but we have no information. That is going to be hard to get that issue solved during special session. I could be wrong, but that is a huge lift to get those two things done.

It makes it tough. We have to tackle the TransCanada issue, either yes or no on buying them out, because that expires at the end of the year. There are all kinds of issues behind that with prices ranging from $74 million buyout to over $100 million

Petroleum News: What do you need to hear from the administration on the gas reserves tax?

Egan: I want to know how we can tax the reserves and make the citizens of this state whole. I want to know how it’s going to benefit the state, I guess. We did pass gas tax legislation. We have a special provision in that bill (SB 138) that benefits what we call rural Alaska, mostly coastal communities that wouldn’t be served by the gas line.

There is an incentive that we get - 10 percent - to do alternative energy, whether it’s hydro or whether it’s solar. Or maybe even a new gas supply for Southeast Alaska like what’s being proposed now by Avista, because they applied for temporary funding from AIDEA (Alaska Industrial Development and Export Authority). I’m excited about that.

Petroleum News: With that in mind, do you think these outlying or coastal regions will have to start looking out for themselves a bit more on things like natural gas?

Egan: We are having to look out for ourselves more now. Absolutely. Maybe that natural gas from LNG won’t be coming from the terminus of the gas line. Maybe it will come from somewhere else, especially in Southeast Alaska. Maybe it’s more convenient to come from Kitimat or northern British Columbia to get a trans shipment. Of course there are issues now in northern British Columbia because they are worried about their LNG plants and the lower price of gas. But I’m excited about companies like Avista even showing an interest. What’s exciting for us is Juneau would be used as the first facility. The northern terminus for shipping LNG to Southeast Alaska would be Juneau. It would be in Sheep Creek on Avista property. It would be tied in with AEL&P, which is an arm of Avista. Well, Avista is the parent now, but they are talking about the same management.

This allows them to diversify. Avista is a major player in the Spokane area. They have over 300,000 gas customers. They know what they are doing. They also have huge hydro customers in eastern Washington, so they know both sides. Avista has been involved in hydro and energy generation just as long as AEL&P, and that’s over 100 years. I think it’s an exciting time for us. And they do have the financial acumen to do that. It takes a lot of bucks. Hopefully we will be able to work with them through AIDEA through temporary loans to bring this to fruition.

Petroleum News: From someone who is not in the gas line corridor so to speak, what kind of approach do you take with this?

Egan: We have to be careful. We have to be involved. We can’t be a stepchild. When it comes to the gas line, we are all of a sudden rural Alaska. Look at what’s happened to the Alaska Marine Highway System right now. A lot of folks don’t understand why the marine highway system was developed in the first place and that was to provide transportation. Our transportation system happens to be on water. We just spent millions and millions to upgrade the Glenn Highway as we were cutting back on the Alaska Marine Highway System.

The Glenn Highway doesn’t generate any revenue per se; it’s not a toll road. The Alaska Marine Highway System generates revenue. It’s not enough, but we generated $54 million in revenue last year. Totally not enough, but we are a highway system. When you get out of our region of coastal Alaska, people don’t understand that this is our basic form of transportation.

But getting back to the gas line, we have to make sure we are a player. Through Sen. Hoffman and different things done through the coastal caucus, thank heavens we are at least getting 10 percent of the revenue if in fact we get gas to market. We are going to be a player, whether it’s through renewable development, whether it’s through natural gas coming from northern British Columbia - or somewhere - or hydro, or solar or even wind. Thank heavens at least we will have some money available to explore those opportunities. So I think our voice is relevant. I hope so. I really hope so.

Petroleum News: So as you look at the bigger picture and look at how several previous governors have had their own plans that have either failed or, in the case of Gov. Parnell’s plan (SB 138), is slowly being re-crafted, and knowing how difficult it is to get the three majors on the same page for very long, do you think this state will ever get a gas line?

Egan: I hope like heck we do. There are a lot folks who don’t understand this is not a tomorrow thing. No matter what happens in the special session a gas line to tidewater is not going happen tomorrow. If it happens, it’s not going to be in my life time.

Petroleum News: So you’ve discussed the gas reserves tax, now turning things to the TransCanada buyout what do you want to hear from the administration to help drive your decision?

Egan: From what little I’ve heard and from what’s been said in the presentations the administration has made, we’ve got a lot to think about. We had a town hall meeting in Juneau that was the most well attended hearing of that sort in the state. We had one in Anchorage and one in Fairbanks and we had a better turnout than Alaska’s largest city and Alaska’s second largest city.

So we had a better turn out than anybody. I was very proud of that. We are concerned with the budget and a lot of that has to do with gas. Although if we had gas tomorrow it wouldn’t solve our fiscal mess. We could fire every state employee, but it wouldn’t solve our problem.

So what I want to hear is how we will benefit, how Alaskans will benefit. There is talk everywhere about this. If I can be sold that a TransCanada buyout is something good for our communities, then probably I would be in favor of it. It’s nice when the state has a bigger ownership interest, I think.

You know, remember way back when, the state tried the same thing with oil and the trans-Alaskan pipeline. The idea that the state would have a larger ownership in the trans-Alaskan pipeline was put forth. It was defeated. It didn’t make it through the Legislature. But look back. What would have happened if in fact we would have been a major player on the trans-Alaskan pipeline? I mean wow! We could have the same thing here; of course it won’t be nearly what it could have been with oil. Hopefully they will discover new reservoirs and develop some responsible offshore development.

Petroleum News: So what would you like to see accomplished during the special session?

Egan: Number one I would like to see the TransCanada issue come to fruition, one way or the other. Let’s get the information and make a decision. That’s number one: the TransCanada buyout. You see what we have. We have a letter. It came (Oct. 19) at 3:30. That’s all we have. That’s it. We need more than that. I mean there is no meat in it. It’s what he wants to do, but there is no presentation on how he wants to do it. AGDC is going to have to be involved and supply us with information in hearings. But I don’t know how in the world we are doing to get it done if we have to tackle reserves and everything else. So my priority would be TransCanada and make sure whatever we do, it’s beneficial to us - one way or the other.

Petroleum News: You got in office about a year after TransCanada got its license. Your familiarity is they are here for now and remained under here under SB 138. What were your thoughts on that at the time under SB 138?

Egan: I was sworn in the last day of session (in 2009), then we ended up with SB 21 and I’m not going to get into whether SB 21 is working or not, but you can see everybody has pros and cons. Personally, I voted against SB 21, but I voted for SB 138. At first I thought it gave too much to the producers. After we got the amendment in there for the coastal communities, then we voted for SB 138 and I voted for it. I know (Bert) Stedman voted for it on concurrence. Otherwise it had no benefit for coastal Alaska. Thanks to Lyman and his seat on the finance committee, he got it through.

Petroleum News: So getting back to your earlier thought on responsible offshore development, what are your thoughts on recent offshore news, first Shell pulling out and the Interior announcing a halt on offshore leasing?

Egan: I can understand some environmentalist views and how they are happy that Shell is pulling out. I’m personally not happy they are pulling out. I’m hoping it’s a short abeyance and they will be back or some other major will come in and start exploring offshore. Of course there are still pushes for more exploration at NPR-A and with ANWR. A lot will depend on the new administration that comes in the next presidential election.

Petroleum News: And what about the Interior’s decision to pull back on offshore leasing?

Egan: I was disappointed. I mean I thought when the president visited Alaska recently - and the governor had a good chance to explain to him and the administration issues affecting our state and how Alaska can benefit from responsible offshore development, and they talked a lot about ANWR and things like that - so I was disappointed that the secretary came out and delayed and withdrew it.

Petroleum News: So were you surprised or would you have predicted that?

Egan: Oh, I was surprised because there was some excitement, then all of a sudden there was a 180 where you had environmental approvals then all of the sudden everything gets withdrawn. It had a lot to do with the price of oil. That doesn’t mean we have to stop everything entirely as far as I’m concerned.

Petroleum News: OK, looking beyond special session, and into the regular session next year, the Legislature will be revisiting the issue of tax credits and whether they are worth it and whether the state can still afford them. What are your thoughts on that for next session?

Egan: I think we have to look at it. I do. We ought to look at it no question. I’m not for or against it right now, but we ought to visit the tax credit issue. I think it could be beneficial to the state. I’m sure the producers are not in favor of it.

You’ll really hear both sides of that story, too. The oil companies are already running ads talking about how the tax credits that are so beneficial but there’s another side saying hold it, wait. That’s not necessarily true. If I were a major and I had tax credits, I would be all in favor of it. If I were a business owner, like I used to be, and they cut my property taxes in half, I would be happier than a clam. But I didn’t have the opportunity to have the local assembly or governing body to cut my taxes in half.