Sunday Headlamp: Special Session Day 9…Spotlight on the TransCanada buyout: agreement, disagreement, risks, and lingering questions

November 1, 2015 | Posted in : News

Sunday Headlamp: Special Session Day 8…Spotlight on the TransCanada buyout: agreement, disagreement, risks, and lingering questions

Big Questions Remain.  Saturday’s Senate Finance hearing, featuring the state legislative consultants of Janak Mayer and Nikos Tsafos of enalytica, demonstrated that there are some key areas of disagreement between the consultants hired by Governor Bill Walker’s administration and enalytica on issues related to the TransCanada buy out.

Where they agree: TransCanada is going to be paid whether or not the current buyout legislation is passed.  Other areas of agreement: if AKLNG falls apart, terminating the relationship with TC now is cheaper than later…the State’s currently high credit ratings are going to take a hit either way… and the state has a few different financing options to pay for the buyout.  The bottom line is that a buy-out now is the only clean way the state has to sever its relationship with TC.

Where they disagree: The financial case for a buyout is not as compelling as the administration’s consultants have claimed.  According to enalytica, the state is only “slightly better off – not massively better off by severing relationship with TransCanada.” The Walker administration has argued that the state could rake in up to $400 million more in annual cash flows.  More likely: the state would get up to $360 million in additional annual cashflows… as a result of a $2 billion additional outlay in the short-term.  The biggest area of disagreement was whether the financial question was the core to the buy-out.  enalytica encouraged lawmakers to consider the strategic considerations of a buy-out: what does it mean for the current framework for AKLNG?  What would a buyout mean for any expansion plans?

While lawmakers and enalytica agreed on many aspects of the proposed buyout, such as the state’s payment requirements, credit rating concerns, and other financial issues, there is no escaping the fact that a disconnect remains between all the parties involved in the Governor’s plan. Headlamp wonders…

Could the state better protect its interest in Alaska LNG? Out of the 135 member AKLNG project management team, not one is an Alaska Gas Development Corporation employee.  Moreover, the decision-making process is unclear to everyone involved and has Alaskan lawmakers nervous.

How will the state ensure a full pipeline? AGDC’s expansion plans are unclear, but does the body have the technical expertise to manage a pipeline in addition to the commercial expertise to keep a pipeline full for buyers?

What is the state’s vision for AKLNG? A withdrawal agreement would raise the risk for Alaska—gas prices could sour and expose Alaska to a number of financial risks.  If partners withdraw, gas could cost the state some $1.4-1.7 billion each year alone.

The hearing ended with a focus on a withdrawal agreement – a key priority for the Governor and his team.  enalytica warned that seeking such an agreement, before PRE-FEED or FEED work is complete, is premature.  Focusing now on such an agreement could carry major risks for the state.  It isn’t necessary to make that agreement now, and better information will be available later if it is necessary to have such an agreement.

Top News

Shifting leadership, interests complicate Legislature’s TransCanada decision

Alaska Dispatch News, Pat Forgey, October 31, 2015

TransCanada has been trying to bring Alaska’s vast natural gas reserves to market for decades, but now the pipeline company that was once viewed as Alaska’s savior is on the verge of ending a high-profile relationship with the state.

Legislator’s advisers also call for TransCanada buyout

Juneau Empire, James Brooks, November 1, 2015

The advisers hired by the Alaska Legislature to provide an independent view of the AKLNG natural gas project say they agree with the state in its call for a buyout of Canadian firm TransCanada.

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In the Morning Headlamp: Special Session Day 8, Halloween in Juneau… House lawmakers await details of state takeover of TC pipeline expertise while top TC official says no “longer commercially viable” for it to continue in AKLNG

October 31, 2015 | Posted in : News

Who’s the Boss? The Associated Press and Alaska Public Radio Network covered reports that lawmakers are waiting on Governor Bill Walker to produce details of how, and who, from the state would assume TransCanada’s role in the AKLNG pipeline and gas treatment plant. House Speaker Mike Chenault put it this way: “While I respect the governor, I don’t think that he has the time to be in charge of the state and also the gas pipeline project and do a good job with both…there needs to be somebody in the administration where the legislature or Alaskans can go to and say, ‘What’s going on? Where are we at? And, give us an answer!’” The Governor noted that while he is not involved in day to day negotiations, he speaks weekly with counterparts at the state’s three oil company partners and gets daily phone updates from officials.  There appears to be a common line of questioning this special session:

Can We Get a Straight Answer? Attorney General Craig Richards again cited attorney client privilege in front of yesterday’s Senate Finance Committee. Senator MacKinnon and the Attorney General were involved in more than a few testy exchanges as members of the Committee looked for more clarity in the leadership at AGDC.  Senator MacKinnon asked AG Richards if she could call AGDC President Dan Fauske and request he waive that privilege, to which Richards responded “I don’t know if he has the authority.”  Headlamp wonders if anyone other the Governor and his Attorney General have any authority on AKLNG anymore.

No longer “commercially reasonable”. KTUU covered reports that TransCanada supports the governor’s plan to buy its share of the Alaska LNG Project because “it is no longer commercially reasonable” to continue with the current arrangement, according to an official who testified Thursday in the Capitol. Lawmakers questioned whether the statement implies that Alaska LNG itself wasn’t viable, to which a TransCanada official responded, “The project, as far as we see it, still has a lot of potential.” Headlamp notes the difference between “reasonable” and “viable”.  The project is still viable at this stage – the arrangement with the state is no longer reasonable according to TC. 

 

First Reads

Senate majority wants exit plan for TransCanada; Walker says he’s got it

Alaska Public Radio Network, Rachel Waldholz, October 30, 2015

 

Alaska Legislature News

Endowment plan for Permanent Fund would add stability to chaotic budget

Alaska Dispatch News, October 31, 2015

 

AKLNG News

TransCanada: Alaska LNG Project no longer ‘commercially reasonable’ for company

KTUU, Austin Baird, October 30, 2015 

 

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Morning Headlamp: October 30, Legislative Special Session Day 7

October 30, 2015 | Posted in : News

In the Morning Headlamp: Special Session Rolls Into Day 7 … Walker Releases Budget Plan … and TransCanada WANTS Out of AKLNG Regardless of Leg Action?

What Was That Again? Yesterday, Gov. Walker announced the most significant change to the state’s annual budgeting process since the creation of the Alaska Permanent Fund in 1976. The Alaska Journal of Commerce covered the roll out of the plan. The proposal won’t completely fill the state’s gap between revenue and expenses. According to an analysis provided by the state, the Permanent Fund would have to have “well over $100 billion to generate sufficient revenues to fully fund the state budget and allow for dividends at the current rate.” Grace Jang, a spokeswoman for the governor, said it’s important to remember that using the Permanent Fund “is the major underpinning of the plan” to balance the state budget. “We’re not saying this is the plan,” she said. Headlamp is looking forward to seeing the rest of the plan. 

Leaving TransCanada. At yesterday’s House Finance Committee meeting, Vincent Lee, director of major projects development for TransCanada, said if the state doesn’t buy out his company’s stake they would “seriously consider” leaving  on their own, according to the Alaska Journal of Commerce, in which case the state would still be obligated to pay their costs. Lee also told lawmakers that yes, TransCanada has confidence in the AKLNG project, that it has confidence the state can proceed without TransCanada’s involvement, and that AGDC is capable of taking over. Alaska Public Radio Network  has more on the hearing. Headlamp thinks there’s still plenty to figure out about this potential deal, starting with whether the state can replace TransCanada on the Project Management Team without causing any more delay to the project. 

Calling Dan Fauske, Calling Dan Fauske. Things got testy at Tuesday’s Senate Finance Committee, according to the Alaska Journal of Commerce, when the state failed to make the head of the Alaska Gasline Development Corporation Dan Fauske available to take questions on the TransCanada buyout and other Alaska LNG issues. When AGDC representatives not named Fauske showed up to testify before the Senate Finance Committee, co-chair Anna MacKinnon (R-Eagle River) had one question: “Gentlemen, the first question out of the gate is, where is Dan Fauske?” she asked. Joe Dubler, AGDC’s vice president for commercial operations, said he “was asked not to” come and then said “the attorney general for the State of Alaska is the one that’s running the special session for the governor and he asked that Mr. Fauske not be in Juneau today.” In explaining the decision, AG Craig Richards said the administration wanted to have the people most technically knowledgeable about the subject on hand to answer questions.  After a 45 minute break, Fauske dialed in.

Attorney Client Privilege?  By then, lawmakers were peppering the AGDC head on reports that  AGDC had approved the creation of a new subsidiary corporation under AGDC for the purpose of acting as a “gas aggregator”.  Several Senators expressed concern that it appeared the state was attempting to act like a producer.  At one point in the hearing, AG Richards  invoked attorney client privilege.  Headlamp asks the question:  does the Attorney General work for the people of Alaska? 

 

Top News

Gov. Walker rolls out Permanent Fund budget proposal

Alaska Journal of Commerce, James Brooks, October 29, 2015

TransCanada exec: Company ready for buyout

Alaska Journal of Commerce, James Brooks, October 29, 2015

Lawmakers: TransCanada buyout likely, but is state ready?

Alaska Public Radio Network, Rachel Waldholz, October 29, 2015

 

Alaska Legislature News

Q&A: A Look at the Pipeline Project Being Pursued by Alaska

New York Times, AP, October 30, 2015

 

Alaska LNG News

Asian gas market slumps as Alaska policy makers voice support of LNG pipeline

KTUU, Austin Baird, October 29, 2015

Port MacKenzie director wants LNG pipeline project to use alternate route

KTVA, Daniella Rivera, October 29, 2015

 

Alaska Energy News

Oil and gas industry messaging effort reaches elementary students in Mat-Su

Alaska Dispatch News, Alex DeMarban, October 29, 2015

88 Energy on track at Icewine in Alaska

Energy Voice, Phil Allen, October 30, 2015

 

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Headlamp’s Common Sense Series: Megaprojects Deadly Mistakes

October 29, 2015 | Posted in : News

Alaskan’s Should – and Do – Know Better

With the special session of Alaska’s legislature in full swing and all the focus on a TransCanada buyout, and little focus on critical commercial terms for the gas project, AK Headlamp has been left wondering; don’t we know better?

Industrial megaprojects are vital to the economic futures of the cities, states, and individual people they touch, but don’t let the word “Mega” fool you. While these projects will generate thousands of jobs, generate millions in family wages and bring substantial revenues to our communities, their fragility cannot be overlooked. Building a project of the scale of Alaska’s $55 billion AKLNG megaproject is no easy task. And with so much on the line with the potential to shape the economic landscape of Alaska, there are some clear dos and don’ts that we must abide by if we wish to see this project come to fruition.

The Alliance – and Headlamp – know these principles well. In 2011, Independent Project Analysis (IPA)’s Ed Merrow met with many members of the Alaska Legislature and later in 2012 hundreds of our Alliance members to map out these best practices for megaproject construction. IPA’s deep understanding of what drives the successful development of capital projects, in addition to their unparalleled database of actual project results collected over 25 years, makes them the experts on leveraging the right tactics to make megaprojects successful.

The Governor and some members of the legislature were not around in 2012 to listen to Merrow’s presentation, but the stakes for our AKLNG have never been higher.  In fact, IPA notes that projects the size of AKLNG are failing far too often, about twice the rate of smaller projects. And with the United States representing only a small fraction of the world’s megaprojects that are coming online, Alaska cannot afford to get the process wrong.

Therefore, we here at AK Headlamp have decided to provide a recap on the “Deadly Mistakes” made in the development of industrial megaprojects as our first blog series. Our members know firsthand what makes projects, and megaprojects, successful.  The Alliance represents more than 600 businesses in Alaska that have partnered with global players to build successful industrial projects – from Point Thomson to CD5.  In the upcoming posts we will provide analysis of what can cause these projects to fail and what we can do differently moving forward, including: 

  1. Fostering Alignment – Getting rid of the “I want it all” attitude
  2. Following the Right Timeline – Speed Kills
  3. Managing Costs and Accountability – Right Cost, Right People

Alaska’s leaders, we suggest you grab a pen.

 

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Morning Headlamp: October 29, Legislative Special Session Day 6

October 29, 2015 | Posted in : News

The TransCanada buyout may be a foregone conclusion, but lawmakers are focused on the longer-term financial implications of the deal according to the Alaska Journal of Commerce.  In the piece, reporter Tim Bradner notes that the next focus will be on a withdrawal agreement that Governor Walker has pushed for; Headlamp worries that the constant focus on a withdrawal agreement could be stalling progress on other key needs for AKLNG.

Tough words for the governor from the Alaska Journal of Commerce, which editorialized on his short-lived gas reserve tax proposal. Editor Andrew Jensen said of the tax gambit, “So once again, Walker caused a huge fuss over nothing, much the way he announced he would pursue a competing project to AK LNG this past March until the Legislature stopped him by taking his money away from the Alaska Gasline Development Corp.” Headlamp has been saying it’s going to take cooperation and coordination between all the partners to make that project happen; one of several rules of success for megaprojects such as Alaska LNG.

Permanent Fund changes on the way? Alaska Public Radio Network, KTUU, and KTOO covered reports that Governor Bill Walker and Attorney General Craig Richards will propose an overhaul of the way Alaska uses the Permanent Fund when he releases his budget later this year. The plan would turn the state’s various savings accounts into a kind of endowment, using their earnings to fund state operations. Speaking with reporters Wednesday morning, Attorney General Craig Richards said the goal is to stabilize state finances.  Not so fast, according to the Alaska Dispatch News which reported that lawmakers are saying it may take time for both them and the general public to digest Governor Bill Walker’s proposal to shift the focus of the Alaska Permanent Fund from paying dividends to using it to pay for some state operations.

The state economy continues to face headwinds. Alaska Dispatch News’ Pat Forgey covered the latest unemployment data, noting that through August and September, the state lost more than 1,000 jobs compared to the year before.  Of note – state economists admit that perceived state job losses might not be accurate and the only confirmed significant job losses are in the private sector.

First Reads of the Day

Gas tax shelved, buyout still on agenda

Alaska Journal of Commerce, Tim Bradner, October 28, 2015

Editorial: Producers let Walker save face in pulling gas tax
Alaska Journal of Commerce, Andrew Jensen, October 28, 2015

Alaska job losses continue, but unemployment drops as well

Alaska Dispatch News, Pat Forgey, October 28, 2015

 

Alaska Legislature News

Walker proposes Permanent Fund overhaul to cover deficit

Alaska Public Radio Network, Rachel Waldholz, October 28, 2015

Gas line officials endure tough questioning; Senate insists it’s not ‘torture’

Alaska Dispatch News, Nathaniel Herz, October 28, 2015

Legislators want to study Permanent Fund plan, but say it has merit

Alaska Dispatch News, Rachel Waldholz, October 28, 2015

AJOC EDITORIAL: Producers let Walker save face in pulling gas tax

Alaska Journal of Commerce, Andrew Jensen, October 28, 2015

TransCanada official expresses support for gas project

Washington Times, Becky Bohrer, October 28, 2015

Lawmakers scrutinize risks, rewards of TransCanada buyout

Alaska Public Radio Network, Rachel Waldholz, October 28, 2015

 

Alaska LNG News

Neighbors weigh-in on the impacts of the Alaska LNG project

Peninsula Clarion, Rashah McChesney, October 28, 2015

 

Alaska Energy News

TransCanada ready for buyout

Peninsula Clarion, James Brooks, October 28, 2015

Morris News Service-Alaska/Juneau Empire

Ambler road work resumes; state closes on utility purchase

Alaska Journal, Elwood Brehmer, October 28, 2015

Utilities advancing transmission co., AEA refining cost estimates

Alaska Journal, Elwood Brehmer, October 28, 2015

 

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Morning Headlamp: October 28, Legislative Special Session Day 5

October 28, 2015 | Posted in : News

The Weekly Standard published a piece by Ike Brannon questioning Governor Bill Walker’s desire to “alter the deal” of the AKLNG framework put in place before his election.  The piece notes that while the decision to pull the GRT was the right one, Alaska’s economy cannot afford having its leaders reopen negotiations again and again on the $45-65 billion proposed project.  Brannon warns that “many worry that Walker is receiving questionable advice on how to make the project work.”

In today’s Juneau Empire former Governor Frank Murkowski addressed the state’s efforts to secure a gas line.  Though the former Governor is absolutely right in stating that the special session would be better focused on “alignment and fiscal certainty” for AKLNG, he failed to address how the state would overcome its lack of technological know-how in assuming an ownership stake in the AKLNG pipeline and gas treatment plant.  Headlamp was encouraged that the former Governor agreed that a gas reserves tax was poor policy.  Many observers will remember that he supported such a policy near the end of his term as Governor in 2006.

The Alaska Dispatch News covered reports that a pair of Alaskan legislators said they expect to start hearing more questions about whether the project is truly feasible. The state is facing multibillion-dollar budget deficits, and market prices for natural gas have recently plunged along with oil. “I think you’re going to see us start talking about it,” said Rep. Lynn Gattis, R-Wasilla. “Can we afford it and should we? Who’s got the plan?”

The Alaska Dispatch News covered reports that Gov. Bill Walker has invited Alaska business leaders here Thursday for a discussion of his final fiscal plan and the unveiling of his budget, and lawmakers will get their own briefing Wednesday on a “sovereign wealth fund concept.” On Tuesday, Walker’s office emailed all 60 legislators to invite them and senior staffers to a Wednesday presentation from Attorney General Craig Richards “on the sovereign wealth fund concept.” Several copies of the invitation were provided to Alaska Dispatch News.

The Alaska Dispatch News covered reports that oil has begun flowing at its CD5 drill site, part of the Alpine field on the North Slope. The production is coming from Alaska Native lands within the boundaries of the Indiana-sized reserve, created as a naval petroleum reserve after World War I.

 

Alaska Legislature News

Bill Walker ‘Alters the Deal,’ and Threatens Alaska’s Prosperity in the Process

The Weekly Standard, Ike Brannon and Jared Whitley, October 27, 2015

My Turn: Can Alaska afford our state government?

The Juneau Empire, Gov. Frank Murkowski, October 28, 2015

As Alaska lawmakers debate how to build pipeline, some ask: ‘Should we?’

Alaska Dispatch News, Nathaniel Herz, October 27, 2015

Lawmakers: Why didn’t the governor just make a decision on TransCanada buyout?

KTUU, Austin Baird, October 27, 2015

My Turn: Can Alaska afford our state government?

The Juneau Empire, Gov. Frank Murkowski, October 28, 2015

Legislature Weighs Options on Proposal to Nix Deal with TransCanada

Alaska Commons, Craig Tuten, October 27, 2015

 Legislators: Is gasline corp ready?

The Juneau Empire, James Brooks, October 28, 2015

Lawmakers weigh risks and rewards of TransCanada buyout

Alaska Public Radio Network, Rachel Waldholz, October 27, 2015

 

Alaska Fiscal News

Alaska Gov. Walker plans briefings on fiscal concepts and budget

Alaska Dispatch News, Nathaniel Herz, October 27, 2015

 

Alaska Energy News

 

Port MacKenzie gas project one step closer

Alaska Public Radio News, Ellen Lockyer, October 27, 2015

After a decade, oil begins flowing from National Petroleum Reserve-Alaska

Alaska Dispatch News, Alex DeMarban, October 27, 2015

 

Alaska Permanent Fund News

Walker names his Attorney General to Permanent Fund board

Alaska Dispatch News, Pat Forgey, October 27, 2015

 

Arctic Energy News

Shell Shelves Alberta Oil-Sands Project After Leaving Arctic

Bloomberg, Rebecca Penty, October 27, 2015

 

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Don’t Confuse Activity with Results

October 27, 2015 | Posted in : News

There’s been a lot of talk about moving forward as quickly as possible to get Alaska a gas line.  If you are watching any of the special session hearings, you’ll note that our legislators are continually asking about what the state has done to move the project forward.

They ask, because there is a road map to get the state to the next critical stage of AKLNG.  In 2014, Senate Bill 138 (SB138) was signed into law with a massive bi-partisan super majority: 36-4 in the House and 16-4 in the Senate.  This law provides a “checklist” of duties and milestones to be achieved in order to keep the project moving forward.

As the administration presents information about what they’ve been doing – legislators are attempting to clarify if their activity is indeed leading to results that will move the project forward.

 

A Flawed Roadmap?

Despite the overwhelming support in 2014, the Governor wrote in September that the process adopted by the bill “poses serious challenges.”  When Governor Walker called for a special session, he wrote:

The project process adopted by SB 138 poses serious challenges that make AKLNG very difficult to progress in a manner, and on a timeline, that can maximize benefits to Alaskans.

Flawed or not, the bill is the law of the land.  And it enjoyed overwhelming support in the Legislature and was signed into law little more than a year ago.  Back in 2014, our leaders in Juneau thought it provided the tool kit, funding, and oversight needed to get us to the next step of the project.

When pressed, the only “flaw” that administration officials could identify was the lack of a withdrawal clause.

 

What Is Senate Bill 138?

Actually, SB 138 is the road map or to-do list to get to a FEED decision.  Moving into FEED (Front-End-Engineering-and-Design) is the threshold moment to developing AKLNG.  If AKLNG is Alaska’s top priority, shouldn’t we have a serious conversation about what’s next on the to do list?

SB 138 allowed the administration to work on AKLNG as described in the heads of agreement (HOA) signed back in 2012.

There are 9 project critical elements laid out by the HOA: (http://dor.alaska.gov/Portals/5/Docs/LNGDOCS/HOA.pdf)

  1. Gas Production Tax
  2. State Gas Share
  3. Payment in lieu of property tax (PILT)
  4. Predictable and durable contractual terms
  5. Eminent domain rights
  6. DOE Export license
  7. Permitting for construction of in-state infrastructure
  8. “A healthy, long-term oil business”
  9. Legislation “in the 2015 legislative session to clarify State regulatory authority

 

2 of 9

 Of these 9 tasks before the state, two of these items have been addressed:

  1. A Department of Energy export license that was conditionally granted in May this year for the project to export LNG to countries with which the United States does not have a free trade agreement with.
  2. Eminent domain rights, allowing the project right of way powers on state land and through state park lands. These powers are necessary for the project to get access to land for building future pieces of the AKLNG project.

Good news, but what about the others?  As important as a TransCanada buy out is, not one of these steps are able to be skipped.  It seems like rather than checking things off the to-do list, we are adding more work to be done.

Right now there is a lot of talk about “leverage” and what’s best for Alaska.  Shouldn’t we also be doing what we can to actually move the project forward?

 

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Morning Headlamp: October 27, Legislative Special Session Day 4

October 27, 2015 | Posted in : News

The Alaska Dispatch News covered reports that Alaska Governor Bill Walker is asking the Legislature to approve an $840,000 salary and benefits package for an as-yet-unknown public employee to work on Alaska’s natural gas pipeline megaproject. The state budget currently puts $360,000 toward the position, according to a spokeswoman for Walker, Katie Marquette. Walker is asking lawmakers to approve another $480,000 for the job, for a total salary and benefits package of $840,000.

Alaska Public Radio Network covered the recent hearings in the Resource Committees that featured the Alaska Oil & Gas Conversation Commission. On Monday afternoon, the Senate Resources Committee met to hear about another crucial, if little-discussed issue: if you tap into North Slope supplies of natural gas at currently producing reservoirs, there will be less oil to develop in the future.  That would be the result of an end to gas reinjection as gas is produced, leaving less pressure in the reservoir for development. The Conservation Commission is tasked with making sure the state’s oil and gas resources aren’t wasted, and it has to approve any plans to take gas from the North Slope – including for the Alaska LNG project.  So far, the Commission has given approval.

Alaska Public Radio Network covered reports that Gov. Bill Walker has appointed state attorney general Craig Richards to the Alaska Permanent Fund Corp. board. Craig Richards is replacing Larry Hartig, who is commissioner of Alaska’s Department of Environmental Conservation. Hartig was appointed to the board in 2009. In addition, Angela Rodell, new CEO of the Alaska Permanent Fund Corp. starts work this week.

 

Alaska Legislature News

Walker administration wants to pay state employee $840,000 for gas pipeline work

Alaska Public Radio Network, Lori Townsend, October 26, 2015

 

The North Slope puzzle: more gas means less oil

Alaska Public Radio Network, Rachel Waldholz, October 26, 2015

 

To buyout, or not to buyout? The Legislature debates

Alaska Public Radio Network, Lori Townsend, October 26, 2015

 

Alaska Permanent Fund News

New CEO of Alaska Permanent Fund Corp to take helm this week

News Miner, October 26, 2015

 

Walker appoints attorney general to Permanent Fund board

Alaska Public Radio Network, October 26, 2015

 

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Special Session Weekend Wrap: Gas Tax Part 2?

October 26, 2015 | Posted in : News

Late Friday, Governor Walker announced that he was withdrawing the gas reserves tax from the special session. However, when the session began the next morning, the tax remained a focus of the Governor’s team.

On Saturday morning, administration members gave a briefing to legislators, media and the public in Juneau. They presented an overview of legislation regarding the state’s buyout of TransCanada’s share in the AKLNG pipe and Gas Treatment Plant. Hearings on that will occur in the House and Senate Finance Committees in the coming days. Headlamp will be watching.

Despite the gas reserves tax being pulled from consideration, however, the idea behind a tax continues to be a focus of the administration. Consultants for the Governor’s team started Saturday morning’s session with a discussion of principles for new potential gas taxes – among them, a tax on gas flaring and a tax on gas reinjection. Russia and Nigeria, countries with state-run oil and gas companies, were offered as potential examples where a tax was used successfully. Attorney General Craig Richards ended the briefing with his takeaway that “taxes could be used as incentives” to push the project forward at a faster pace.

Taxing a project into existence, however, is not a successful tactic, and Headlamp is searching for an example of where this has been done successfully, in countries or states that don’t have government run oil and gas companies. Uncertainty is the enemy of investment, and the threat of taxes does not appear to be a tactic that can be used helpfully amidst ongoing negotiations between the state and its producer partners to move AKLNG forward. In the coming days, this blog will take a look at megaprojects best practices. Stay tuned for more.

HB 3001 – the TransCanada Buyout – More money, more pipe, more control

The rest of the weekend’s focus was squarely on the state’s potential buyout of TransCanada’s share in the proposed AKLNG’s pipeline and gas treatment plant (GTP). While the House Finance committee heard from the administrations’ consultants on the financing issues involved with a buyout of TransCanada, the Senate Finance committee heard from budget director Pat Pitney on the financial details and their consultants, enalytica.

Both consultants addressed core questions: How will the state’s credit rating and borrowing capacity be impacted? At what cost will the state finance its share of the gas treatment plant and the pipeline? How can the state fund its share of these additional costs?

The divergent views from the administration and the legislative consultants suggest that there is more at stake with the TransCanada buyout than simply appropriating money and moving the Alaska Gasline Development Corporation into a new role on the pipeline and GTP.

The administration’s consultants concluded that a buyout of TransCanada would not impact the state’s credit rating or borrowing capacity, nor would it impact the state’s costs in financing its share of the AKLNG project.

The legislative consultants, warned, however, that other uncertainties were lurking in the decision. They noted that “the financial case for keeping or getting rid of TC is too close by itself to be persuasive especially given the uncertainties involved with a project at such an early development phase.”

Pointedly, the legislative consultants advised that other core questions be addressed during the special Legislative Session, including: Has TransCanada delivered on the state’s expectations for their role to date? Would TransCanada’s departure from the project impact current project timelines?

They also asked a key question: what happens to the ongoing workflow on the pipeline? Would key personnel with the engineering know-how from TransCanada stay on? Does Alaska have the right people to pick up the pieces from TransCanada in the short term?

All of these questions raise a critical one that has implications for our state’s economic future: Does the decision on TransCanada progress – or rather delay – the AKLNG project?

That, ultimately, should be the focus of Alaska’s leaders over the coming weeks.

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Legislative Forecast: It’s like déjà vu all over again

October 23, 2015 | Posted in : News

Governor Bill Walker called the special Legislative session to address two issues: purchasing TransCanada’s ownership stake in the AKLNG project and implementing a new tax on natural gas reserves.

Trans Canada Buy Out: Can we afford this?

On the TransCanada buyout, the issue ultimately boils down to what’s actually in any agreement. On one hand, the idea of taking over management of the state’s 25 percent stake in the gas treatment plant (GTP) and the pipeline seems like a good idea: as it means more revenue for Alaska. On the other hand, with its 3+billion dollar budget shortfall, Alaskans should be asking can we afford the potential price tag of more than $108 million as oil prices continue to plummet? Additionally, have all of the risks to this investment been investigated?

The administration and the Legislature should work on finding a responsible solution to the budgetary shortfalls that considers what’s in the best interests of both the state’s short- and long-term needs.

Gas Reserves Tax: bad idea then, dangerous idea now.

On the gas reserves tax, this issue was soundly rejected by Alaskans the previous two times it was considered in the last 13 years. There’s much still to be learned about the governor’s proposal, but from what he’s said publicly, this move appears to be a gambit for more ‘leverage’ in the negotiations with the other partners in the Alaska LNG project.

The governor continues to say he wants to work with the partners and is committed to this project, but a punitive new tax doesn’t get us there. It’s been tried before, and failed.

Let’s look at the details of previous attempts.

Jim Whittaker, chief of staff to the governor wrote the original gas reserves tax legislation in March 2001, when he was serving as a state representative. Mr. Whitaker withdrew that bill in May 2002. Mr. Whitaker tried again in 2006 as mayor of Fairbanks, to take the issue directly to the people of Alaska through a ballot measure. That measure failed 66 – 34 percent, and was universally panned by Alaskans from Barrow to Kenai.

Should we expect anything different in 2015? Until we see the actual legislation, we can’t answer the question. If the tax is similar to the 2006 ballot initiative, then, it’s nothing new, just the old idea wrapped up in new packaging. The governor may not be aware that this will hinder negotiating a deal rather than being a help to negotiations.

To his credit, this governor has shared our vision of exporting Alaska’s gas, and creating jobs in state. Working with the Alaska LNG partners to advance that project is in all our collective best interests if we’re going to get the economy growing, the budget deficits closed, and protect our futures.

Stay tuned.

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