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Governor’s natural gas legislation clears the Senate

By Rhonda McBride 5:46 AM March 19, 2014

Measure sets the stage for state ownership in a liquefied natural gas project

JUNEAU – Some state senators called Tuesday’s vote historic. Others said it was momentous and not for the faint of heart.

Gov. Sean Parnell’s natural gas bill passed 15-5 and now heads to the House, which will have to make quick work of Senate Bill 138 because there’s only about a month left in the session.

The measure, which is one of the most complicated bills the Legislature has ever dealt with, is laden with “oil speak” and technical terms, which can take a lot of time to grasp.

SB 138 sets the stage for the state to become an owner in a liquefied natural gas project. With an estimated cost of between $45-65 billion, it would be the largest LNG endeavor in North America and would include a gas treatment plant on the North Slope, an 800-mile pipeline and an LNG plant at Nikiski. At peak construction, it would employ around 15,000 people.

The state would team up with three oil companies – ExxonMobil, ConocoPhillips and BP – along with TransCanada, one of the biggest pipeline builders in North America.

Democrats introduced 16 amendments to SB 138.  None of them passed, but they did highlight problems in the legislation, identified by two consultants critical of the bill and other agreements the Parnell administration has reached on an LNG project.

One of the amendments Democrats introduced targeted TransCanada, which was awarded a license to build a natural gas pipeline to the Lower 48 during Sarah Palin’s time as governor.

Although the project was scrapped because the plentiful gas market in the Lower 48 made it uneconomical, the state had some outstanding financial obligations to the pipeline company.

To get out from under this old agreement, the state reached a new one with TransCanada, forming a partnership in the LNG project.

Democrats questioned whether the state might lose leverage if it shares its stake in the project with TransCanada.

“One quarter goes to Exxon. One quarter goes to BP. One quarter goes to ConocoPhillips and one quarter goes to TransCanada,” said Sen. Hollis French, the Senate minority leader. “I’ll bet some of you who were listening thought I was about to say Alaska, that we’d get that last quarter. But we do not.”

Under the agreement, TransCanada would act more like a bank and finance the state’s share in the project – and at some future date, the state could opt to buy back 40 percent of the pipeline company’s investment.

“As an owner state, we should be acting large and in charge,” French said. “Owning 40 percent of a quarter doesn’t sound like an owner state to me.”

Democrats also object to the terms of the deal the pipeline company reached with the Parnell administration. In the event the LNG project is scrapped, the agreement requires the state to pay TransCanada’s expenses.

Supporters of SB 138 in the Republican Senate majority defended the agreement.

Sen. Pete Kelly, co-chairman of the Finance Committee, said TransCanada’s early investment in the project would help the state stretch its reserves.

“We couldn’t buy into this thing if we spent all our reserves, and we don’t want to spend all our reserves,” Kelly said. “We do have an opportunity with TransCanada to let them finance a portion of our ‘in.’”

Kelly said the deal gives the state a larger stake in ownership than it could afford if it were going into the project by itself.

Another big issue debated on Tuesday was language in SB 138 which allows oil companies to deduct gas expenditures from their oil taxes.

“Without this amendment, Mr. President, gas expenditures would be like a shark swimming through our oil taxes,” said Sen. Bill Wielechowski, an Anchorage Democrat.

Sen. Anna Fairclough, who stood up frequently to argue against the Democrats’ amendments, said there’s a good reason for this provision.

“Oil is very different than gas,” said Fairclough, who said a healthy oil industry is key to developing gas for in-state use. “That oil revenue stream can carry the costs, so that Alaskans won’t have to pay at their burner tip for those additional costs.”

Some of the other amendments introduced would:

·      Require the state to be a 51 percent majority owner in the project

·      Require oil and gas producers to develop their leases.

·      Require competitive bidding for pipeline construction

·      Require partners share equally in the cost of infrastructure.

·      Guarantee municipalities and boroughs the right to levy property taxes.

·      Eliminate state payback to TransCanada if the project folds

So why did the Democrats float so many amendments they knew were likely to be shot down?

One reason could be to get their objections on the record. Another might be to open the door to changes to SB 138 when the House begins holding hearings on the bill.

Sen. Peter Micciche, a Soldotna Republican, admitted he was not entirely happy with aspects of the bill and has no idea if the project will ever happen.

“This is not the perfect deal. But it’s so early in the process,” Micciche said. “There’s so many things that will have to happen before this deal will be conceived.”

“We don’t even know what this project will look like,” Micciche said. “It’s a path forward.”

Micciche spoke at length about how he’s seen natural gas pipelines, such as the one from Anchor Point to Homer, improve the well being of Alaskans.

“It’s a life-changing event,” Micciche said.  “I’ve got a dream this state will have a solution for energy problems in Rural Alaska. I believe this deal gets us closer.”

Sen. Donny Olson — who represents communities in Northwest Alaska and the North Slope, where energy costs are among the highest in the nation — said a provision Bethel Sen. Lyman Hoffman inserted in the bill last week solidified his support.  It would allow some of the state’s proceeds from gas royalties to be used to fund rural energy projects.

“What I see in this bill is something that provides for hope,” Olson said. “Hope is out there. Hope is what we are all craving.”

Before the vote was taken, Kelly invoked a pantheon of past politicians.

“Think of yourselves as stepping up to the plate,” Kelly said. “This is a Wally Hickel moment. This is a Jay Hammond moment. This is a Ted Stevens moment.”

“’Yeah, it’s risky, but by gosh, let’s just do it,’” Kelly said he believes the statesmen would have said.

Fifteen senators voted to take the risk.

Four Democrats and one Republican, Sen. Bert Stedman of Sitka, said no to SB 138. Stedman, like Hollis French, objects to TransCanada’s role in the project.

French said it’s hard to look 50 years into the future, but that’s what lawmakers must do.

“I have grave doubts about the way this deal is being structured,” French said.  “We should be driving the train. Instead we are the caboose.”

Supporters of SB 138 point out the legislation allows the partners in the project to opt out until it’s time for construction; that for now, the risks are low while the potential for rewards is great.

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