Before the Alaska Legislature overwhelmingly approved the state’s buyout of TransCanada’s share of the big Alaska LNG Project on Nov. 4, there were some moments of drama.
Committee briefings were mostly heavy on numbers and legalese. What could have added some excitement, Gov. Bill Walker’s gas reserves tax, was pulled from the session agenda by Walker just before legislators convened.
The most drama came when Attorney General Craig Richards was said to have instructed Dan Fauske, CEO of Alaska Gasline Development Corp., the state entity managing Alaska’s ownership in project, to not show up at an Oct. 28 Senate Finance Committee hearing.
Committee co-chair Sen. Anna MacKinnon, R-Eagle River, was running the meeting. She was not amused.
“Where is Dan Fauske?” MacKinnon asked.
When the senator learned Richards had ordered the non-appearance she recessed the committee meeting until Fauske could be produced, and for Richards to explain his action.
MacKinnon was irritated further when the committee learned about a previously-undisclosed letter that had been written to state administration officials Oct. 14 by the governor ordering state officials to clear all written communications with the Legislature on gas pipeline issues with Richards.
Two AGDC officials, commercial vice president Joe Dubler and engineering vice president Frank Richards, showed up for the committee meeting.
MacKinnon asked where Fauske was, as well as two other AGDC officials: Finance Vice President Bruce Tangeman and public affairs chief Miles Baker.
Dubler replied that he and Richardson had been asked to present information but not the others. MacKinnon asked who made that decision.
Dubler replied that it was Richards. Sen. Donny Olson, D-Nome, asked if there was a reason.
“No reason was given,” Dubler said.
When the committee resumed its hearing later that afternoon Fauske was on the phone to help with the presentation on AGDC and answer questions. Richards showed up later in the meeting to defend his actions.
The attorney general vigorously defended the governor’s Oct. 14 letter, sent to executive branch officials 10 days before the Legislature convened its special session, arguing that as the state’s chief attorney he has a responsibility to review documents and presentations to protect the state from litigation.
He said it was appropriate for legal counsel to review materials in advance of a presentation and that this is common in commercial law.
That didn’t sit well with the Senate committee, however, because it also smacked of Richards controlling the message on gas issues and inserting himself between legislators and other executive branch officials, potentially impeding the flow of information.
Sen. Peter Micciche, R-Kenai, asked whether a legal review extended to asking an individual not to testify at a legislative hearing. Richards didn’t answer the question directly, and claimed attorney-client privilege.
He said he and the governor were concerned that the best people to provide information be made available to the Legislature.
He also said, “I don’t believe I asked people not to appear by way of the phone.”
Micciche wasn’t satisfied. He agreed there was a role for the state’s chief attorney: “Our fear, however, is the message is being controlled. I agree with your role (as legal counsel) but not in the controlling of information.”
Sen. Mike Dunleavy, R-Wasilla, chimed in: “This has become a slog for us to get information. There are a lot of holes, a lot of blanks, and we’ve been asking for things for a long time.
“For me, the burden of proof (on the merits of the TransCanada buyout) is on the administration. It appears to be that there is some chaos in the (administration’s) team.”
Micciche went on: “We’re starting to sense a bit of a shell game. We feel like we’re being stonewalled in getting the information we need to do our job. We’ve had no problems with the Departments of Natural Resources and Revenue but we’re struggling with AGDC.
“I’m frankly less interested in going forward with this (the TransCanada buyout) until we get information.”
“It’s a bit of a stretch to ask us to make decisions like this when someone (Fauske) is asked not to come to a meeting so we can ask questions,” Dunleavy said.
Dubler, with Fauske on the phone, went on with the presentation on AGDC and explained its functions and what would happen if the TransCanada buyout would proceed, mainly that the state corporation would step into the pipeline company’s position.
One fact MacKinnon turned up with her questions to Richards is that no senior state officials, including Richards, the commissioners and the governor himself, have signed confidentiality agreements on important commercial information on the Alaska LNG Project.
Richards affirmed that but added that the private partners in the deal, mainly the North Slope producers, had agreed to that.
MacKinnon wanted to make sure she heard that correctly.
“You just told me that you can get access to confidential information without having signed a confidentiality agreement?”
Richards said that is the case.
“I’m a state official, too. Can I get the same deal?” asked Sen. Click Bishop, R-Fairbanks.
MacKinnon pressed further: “How can you negotiate these (state-industry) commercial contracts, and sign them, without being under a confidentiality agreement?”
Richards replied, “The governor and commissioners reached agreement with the companies that we don’t need confidentiality agreements.”
One area the Senate committee probed carefully later in the hearing was the possible role of AGDC in marketing state-owned LNG overseas. There were also a lot of questions about a special subsidiary the state corporation had formed to buy and sell natural gas.
Fauske said the purpose of the new corporation was to act as a gas “aggregator” for small communities along the pipeline route. AGDC could be the entity purchasing gas in larger volumes from North Slope producers, or the state Department of Natural Resources for state-owned gas, and then reselling the gas in smaller quantities to communities.
This saves the communities from having to negotiate their own separate contracts with producers, Fauske said.
Micciche said he was concerned that language in the articles of incorporation for the new subsidiary, which were filed with the state Department of Commerce and Economic Development, appeared overly broad.
He asked: “This allows you to acquire natural gas from a producer, but would it also allow you to acquire gas reserves (in the ground)? It seems overly-broad. What’s to stop AGDC from becoming a gas producer? What’s to stop the state gas corporation from becoming an oil and gas company?”
Ken Vassar, an attorney advising the AGDC, said articles of incorporation are often written broadly so as to give a corporation as much flexibility as possible, but that the state statute governing AGDC provides the limits.
“It says AGDC is to make gas available in the state,” he said.
MacKinnon said she had heard reports that AGDC was soliciting for the purchase of up to 10 billion cubic feet of gas, a volume that would exceed in-state needs. Fauske said he was not aware of any solicitation of that magnitude.
He said any role AGDC would play in marketing state LNG overseas would be in support of the Department of Natural Resources, which has the legal responsibility to manage sales of state resources.
What was behind MacKinnon’s and other senators’ questions on sales of LNG is that if AGDC were to be an LNG marketer its goals might be different than that of the state DNR, which has a responsibility to secure the highest price possible for state resources.
The senator voiced concern that a gas marketing group independent of DNR might put a priority on marketing larger volumes of LNG and with less emphasis on the highest price.
“A marketing team wants to sell as many molecules as possible because it can mean commissions and bonuses for marketers,” MacKinnon said.
The senator also said she had seen press releases about a potential overseas buyer of LNG becoming a partner in the Alaska LNG Project, and that this might create conflicts. Fauske assured her that AGDC would play only a supporting role to DNR and that the state resources agency will maintain its role in being the lead in sales of state-owned gas.