JUNEAU- The Senate has been through some of the same discussions. Now it’s the House’s turn to look at one of the key pieces to state ownership in a natural gas project — the state’s relationship with TransCanada.

It’s a mixture of old business and new business. And the old baggage may be getting in the way of things.

During a House Finance Committee meeting on Tuesday, Rep. Tammy Wilson, a Fairbanks Republican, wanted to know more about the old business — TransCanada’s contract with the state under the Alaska Gasline Inducement Act.

AGIA was born in Gov. Sarah Palin’s administration and led to the state awarding TransCanada a contract to build a natural gas pipeline to the Lower 48. But times have changed, and so has the market. With an abundance of shale gas, the Lower 48 has no interest anymore in Alaska gas.

Now the state is focused on a different kind of project — one that would send the gas through a treatment plant on the North Slope to get rid of impurities, carry it down an 800-mile pipeline to Cook Inlet, where it would be super-chilled at a Liquified Natural Gas plant in Nikiski so it could carried off on tankers to markets all over the world.

Although the project never came to fruition, the state, under AGIA, still owes the pipeline company about $200 million dollars.

Under a recent agreement, called a Memorandum of Understanding, the state and TransCanada reached a new deal, which did two things — freed the state from debt owed under AGIA while at the same time let the pipeline company become a player in the AKLNG project.

In the new partnership, the state and the pipeline company would split the state’s share of ownership in the proposed Alaska Liquified Natural Gas Project. TransCanada would also get a 25-year contract to move gas through the pipeline.

Deepa Poduval, an analyst for Black and Veatch, a company hired by the state for its expertise in LNG development, outlined three scenarios for the committee:

  • The state “going it alone” without TransCanada and financing a 25 percent stake in the project all by itself.

  • TransCanada financing the state’s 25 percent share of the gas treatment plant and the pipeline, giving the state an option to by back 40 percent.

  • TransCanada finances the state’s share with no buyback.

Wilson questioned whether there was really any other option than to include TransCanada in the project because of the debt owed to the pipeline company under AGIA. She wanted to know if the state is “stuck with the partner we have, whether we like ’em or not.”

“There would be no going alone if we came to the conclusion it cost us too much to break that contract,” Wilson said.

Anchorage Democrat Les Gara also questioned the new arrangement.

“What are we giving up in this deal? A part of me feels like the state is being leveraged a little bit by TransCanada,” Gara said. “I’m trying to find out if this is a fair deal.”

Gara also wanted to know what would happen if the LNG project was scrapped. He had heard the state would be on the hook for TransCanada’s expenses.

“How much is that, if I’m correct about that?” Gara asked.

Poduval told Gara he was correct and said the amount TransCanada would be owed would range between $230-390 million.

“Can you explain to me why I should view that as a good deal?” Gara asked.

Poduval said if the state decided to proceed without TransCanada, it might spend more, because it would have to arrange its own financing, as well as expose itself to risks such as delays and cost overruns.

“Although the 230 to 390 million dollars seems like a large amount, these are not incremental to what the state would have paid going it alone,” Poduval said.

Poduval also addressed questions about another option: Why couldn’t the state cash out TransCanada for AGIA and put the project out to bid?

She told the committee the bidding process would set back the timetable for the project — and every year of delay would cost another $800 million, due to inflation and interest rates which are expected to grow in the coming years.

Another question for Poduval: Why not forget about being a partner in the project and handle it like the Trans-Alaska Pipeline, where the oil companies built the infrastructure on their own.

“The Alaska LNG Project is high-cost, complex and not likely without some changes to compete effectively in the market” Poduval said, who told lawmakers the huge $45-65 billion price tag for the megaproject makes it harder to attract investors.

Poduval said it’s possible for oil companies to finance the project on their own, but without state investment they probably wouldn’t be as interested.

“One of the things we found is that it didn’t move the needle very much,” Poduval said. “And the reason it didn’t move the needle very much, is, there’s a 45 billion investment up front.”

Poduval told lawmakers state ownership in the project was probably a better incentive than lower taxes.

“It sort of creates this win-win situation. And so that’s really the logic that led to an equity participation in the project,” Poduval said, which for the state, started making sense.

Finance Committee members peppered Poduval with other questions.

Would it be necessary to tap the Permanent Fund or its earnings? Might there be some creative way to use the fund as collateral for a loan?

Poduval also pointed out TransCanada was assuming a lot of the risks by fronting billions of dollars for the state’s share of the project – and that it could take a financial hit if earnings fall short of projections.

The consultant also said the uncertainties of the project add to the risk for TransCanada.

Poduval says there is simply not enough information on the project yet to understand what the future terms of the deal will be, as well as the risks.

Senate Bill 138, which the Senate passed last week, would give the Natural Resources Commissioner the authority to negotiate on the state’s behalf, to find out if there are buyers for Alaska’s gas and companies interested in financing the megaproject.

It’s now up to the House to find out what SB 138 does and doesn’t do — a challenge as the clock runs out on the final weeks of the session.