My Turn: Can Alaska afford our state government?

  • By GOV. FRANK MURKOWSKI
  • Wednesday, October 28, 2015 1:06am
  • Opinion

The State of Alaska must be very careful in authorizing any new spending on the proposed liquified natural gas line. It is obvious from the record that Alaskans have been chasing every gas-filled rainbow appearing on the horizon.

From about 2006 to 2014, the state spent some $550 million on consultant’s reports and studies on the gas line. The legislature committed $330 million on the feasibility studies for the bullet line. The Legislature proposed $345 million in grants for trucking LNG from the North Slope to Fairbanks. Another $65 million was to continue work on the Susitna study. Since the passage of the Alaska Gasline Inducement Act, the state has paid TransCanada $300 million for the failed open season to obtain the Federal Energy Regulatory Commission license. Now we need, according to Gov. Bill Walker, another $150 million to buy out TransCanada. That totals over $1.7 billion — and we have yet to lay a mile of pipe.

Gov. Walker’s announced intent to buy out TransCanada’s interest in the AKLNG line during the current special session warrants the attention of all Alaskans. He was right to drop the Gas Reserve Tax.

Gov. Walker inherited the TransCanada issue from the Gov.Sean Parnell’s administration when a past Legislature approved SB138. The bill contained two parts: The heads agreement, which was to bring the producers (BP, ConocoPhillips and ExxonMobil) and the state into alignment (which is still in negotiations). The second part was an Memorandum of Understanding between Alaska and TransCanada to cover payment for services performed by TransCanada.

In proposing the TransCanada buyout, Gov. Walker says that it will result in the state making more money from the gas when it comes on line – maybe 10 or 12 years from now. Gov. Parnell and the last Legislature approved SB 138 that included TransCanada, on the ground that it was necessary to partially fund the state’s equity in the project because Alaska didn’t have the funds to develop and finance 25 percent of the construction for a $45 billion to $65 billion project. The state would then buy back its equity from TransCanada over time.

These different views of the risks and affordability of the project should concern Alaskans. Who is right?

One can debate the merits of this conundrum, but on one key point Gov. Walker is clearly right. We have spent around $1.7 billion so far on consultants and alternative projects that have not produced much for Alaska. We need to decide exactly what gasline plan to follow and stick with it to a conclusion, and in a partnership with the producers which hold the gas leases. Why? Because with an annual deficit of $3 billion to $4 billion, Alaska can no longer afford to keep changing (and delaying) the gasline plans of previous administrations.

Moreover, I also agree with Gov. Walker that including TransCanada as a pipeline equity owner was a poor decision. First, the state has the capability to finance its ownership of the pipeline through the Permanent Fund. And, the Permanent Fund has the statutory authority to do it. Second, TransCanada is a fine company with an excellent reputation for building quality pipelines. But unlike BP, ExxonMobil and ConocoPhillips, it does not now, nor has it ever had, ownership of gas reserves. A contribution of gas ownership to the project, not constructing the pipeline, is the key criterion for an equity ownership in the gasline project.

Having TransCanada finance the state’s equity interest in a 10-year project is good for TransCanada but not for the state. Alaska is paying TransCanada its costs plus 7 percent to finance the state’s share of the gasline and refinery. So, TransCanada clearly recognized that its relationship with the state was an investment with an attractive rate of return; 7 percent was well above the prime rate at that time.

So where are we today with TransCanada? We do not have a gasline project underway, so there is no construction for TransCanada to underwrite. The conditioning plant has not yet been started. We hear that there were certain technical and engineering studies done. What were they? What consideration did the state get from TransCanada from the $300 million already paid? In buying out TransCanada, just what would Alaskans get for the additional $150 million, other than termination of a bad deal? The previous Legislature never demanded this detail and it should have been done.

Instead of simply asking the Legislature to fund the buyout, the administration should first attempt to negotiate a settlement agreement with TransCanada. This information should be made available to the Legislature and the public before paying TransCanada $150 million for license termination. I think the Walker administration should have tried to settle with TransCanada before presenting a bill to the Legislature.

If Gov. Walker wanted to hold a Special Session on the gasline, it would have been much more productive to have called it to concentrate on alignment and fiscal certainty with the producers. The Alyeska Pipeline was built solely by the producers with no state participation because the economics were right. Alaska has benefited ever since.

• Frank Murkowski is a former Alaska governor (2002-2006) and U.S. Senator (1981-2002).

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