Ready or not, here comes the gasline special session

  • By ELWOOD BREHMER
  • Wednesday, October 14, 2015 10:22pm
  • News

Hopefully the latest special legislative session will go smoother than the first two.

Lawmakers will convene in Juneau Oct. 24 for the third time this year, with time-sensitive gasline issues on the agenda this go-round.

Gov. Bill Walker called the session Sept. 24 with a short but crucial list of topics to debate, including whether the state should buy out current Alaska LNG Project partner TransCanada Corp.’s share of the project, instituting a natural gas reserves tax on the producers and funding the state’s ongoing gasline work.

State law requires the governor give the Legislature 30 days notice before starting a special session, which will also be 30 days.

Legislators in the majority adjourned a special session called by the governor immediately following the regular session in April to address unresolved budget and Medicaid issues. They reconvened their own special session on the budget in Anchorage several weeks later; one that included talk of a government shutdown during a majority versus minority battle over state spending.

Walker has supported the idea of the state taking a larger role in the $45 billion to $65 billion liquefied natural gas export endeavor. Taking TransCanada’s stake in the pipeline and the North Slope gas treatment plant would give the state a better negotiating position and increase revenue over the life the project, the governor contends.

Right now, the State of Alaska has a 25 percent share of the LNG plant proposed in Nikiski. TransCanada holds the state’s share of the 800-mile pipeline and the North Slope facility. BP, ConocoPhillips and ExxonMobil collectively hold the remaining 75 percent share of the project.

TransCanada’s involvement is largely the result of the settlement of an agreement the state had with the company under the defunct Alaska Gasline Inducement Act.

Buying out TransCanada, an Alberta-based pipeline company, before the end of the year will initially cost the state $108 million according to consultant estimates. The state — with a full 25 percent share of the project — would then also be on the hook for TransCanada’s development costs, roughly doubling Alaska’s contribution to $14 billion or more, depending on final construction costs.

However, with TransCanada out of the picture the state would also see an additional $400 million in revenue per year for the duration of the 25-year project, along with a net present value increase of up to $1.2 billion, state consultant Black and Veatch predicts based on numbers from the state Revenue Department.

State revenue from the Alaska LNG Project — pegged to start producing by 2025 — is currently estimated to be near $3 billion per year initially and increase to around $5 billion in later years.

Republican majority leaders in the Legislature have not opposed buying out TransCanada but they have expressed concern about the state’s ability to finance an extra $7 billion or more with major budget deficits and credit agencies threatening to tweak Alaska’s sparkling “AAA” credit rating if budget challenges are not resolved soon.

The prospect of a natural gas reserves tax came as a surprise to at least some in the Legislature. House Speaker Rep. Mike Chenault, R-Nikiski, said he was “shocked” by the reserves tax proposal in a release following the special session proclamation, as the governor did not hint at the possibility in meetings with legislators prior to the announcement.

Walker argues a natural gas reserves tax is a way for the state to assure the Alaska LNG Project moves forward even if a producer partner pulls out. The tax on gas in the ground would be levied only in the event a producer decides to keep its share of North Slope out of the project.

A reserves tax would not add to state revenue in the long-term if the project is fully completed. The state levied an oil reserves tax on producers as a way to generate revenue during construction of the Trans-Alaska Pipeline; however, the tax paid was then credited against producer obligations once oil was flowing.

This time, the producers said a reserves tax would “complicate” and potentially “undermine” progress on the complicated mega project.

The administration had not put forth bills for the special session as of early Wednesday. Walker spokeswoman Katie Marquette said the governor will introduce legislation before the start of the session.

The Legislature also needs to pass a constitutional amendment exempting the Alaska LNG Project from constraints in the state Constitution sometime before next August or the project could be delayed two years.

State legal opinions have said an amendment would be required for the state to enter into long-term fiscal contracts with the producers. The Alaska Constitution forbids one Legislature from binding future Legislatures, which contracts for the 25-year project would do.

An amendment must be passed by two-thirds of the House and Senate before being judged by voters during a general election. The Legislature needs to address the issue before mid-August to get it on the November 2016 ballot.

Sen. Cathy Giessel, R-Anchorage, chair of Senate Resources said she has urged the governor to introduce an amendment in the special session to get the issue resolved. She was told fiscal contracts, which are being negotiated with the producers, need to be finalized before a constitutional amendment is offered, Giessel said.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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