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Legislators who have been advocating in-state natural gas use, and sometimes criticizing Gov. Sarah Palin's TransCanada proposal, spent the first day of the special session that began Wednesday critiquing Palin's proposal for in-state gas development.

Palin on Monday announced a proposal for Alaska to join with Enstar Natural Gas Co., the state's largest utility, and the Alaska Natural Gas Development Authority to bring a pipeline from Southcentral to Fairbanks.

That could provide Cook Inlet gas to energy-starved Fairbanks, and might later feed North Slope gas back to Anchorage.

Cook Inlet gas fields, which currently supply the Southcentral region around Anchorage, are running short of gas, state officials say.

Rep. Mike Chenault, R-Nikiski, said he was one of those skeptical that the governor's proposal would solve the region's problems.

"I should be the happiest guy in the room," he said, though he expressed doubts that it would solve the region's gas supply problem.

Crucial for his region, he said, was bringing cheap enough gas in to reopen the Agrium fertilizer plant on the Kenai Peninsula.

The second 30-day special session of the Alaska Legislature began Wednesday, reviewing an application under the Alaska Gasline Inducement Act to issue a license to TransCanada for state support for a pipeline. TransCanada opponents, including those supporting an all-Alaska gas line to an LNG export terminal in Valdez and supporters of a competing pipeline across Canada proposed by BP and ConocoPhillips Co., have urged rejection of the TransCanada license.

The Legislature has until Aug. 2 to approve the license, under the provisions of AGIA, passed nearly unanimously by the Legislature in 2007.

The issue of in-state gas use has complicated the discussion of awarding the TransCanada license. That's in part because under the license's provisions Alaska cannot subsidize a competing pipeline until TransCanada gets its pipeline built.

Palin's commissioner of the Department of Revenue, Pat Galvin, said that shouldn't be a problem, because only a pipeline carrying more than 500 million cubic feet of gas per day would be considered to be in competition, and Enstar says the most gas it would use would be less than that amount.

Sen. Hollis French, D-Anchorage, said he was frustrated with the proposal, saying he'd hoped to see a bolder proposal from Palin, possibly a small-diameter "bullet" line from the North Slope to Fairbanks.

"I think the public would support an investment in a bullet line," French said.

Rep. Reggie Joule, D-Kotzebue, said he was concerned that all of the proposals he'd heard to reduce energy costs provided help only for the Railbelt.

The North Slope's natural gas is rich in energy, however, said Harold Heinze, CEO of Alaska Natural Gas Development Authority. That means propane could be taken out of the gas and shipped by barge to river and coastal communities.

"We could service coastal communities, such as Juneau here, with propane off the North Slope," Heinze said.

Rep. Anna Fairclough, R-Eagle River, wondered whether going forward with the state's in-state proposal could preclude a better deal in the future.

The CEO of the development authority, a public corporation created by the state, disagreed.

"At this point I think you have to go with the bird in the hand," said Harold Heinze of ANGDA.

Senate President Lyda Green, R-Wasilla, said she was concerned that the state was getting involved in a project already underway by private industry.

Anything the state did to get involved in the project may only serve to slow it down, she said.

So far, what the Palin administration has proposed is only an agreement to try to develop a project, but administration officials said they expect to bring to the Legislature next year a proposal for state involvement.

• Contact reporter Pat Forgey at 586-4816 or e-mail patrick.forgey@juneauempire.com.