Pipeline competitors update legislators about progress

GAS: Transcanada says it has expertise; Denali sees concerns with partnership.

April 15, 2009 

It was pretty much tit for tat as Denali and TransCanada faced off in front of the Senate Resources Committee and the House Special Committee on Energy recently. The companies have competing proposals for a multibillion-dollar gas pipeline from the North Slope to markets in the Lower 48.

Bud Fackrell of Denali -- The Alaska Gas Pipeline and Tony Palmer of TransCanada updated legislators on the progress of the proposals.

TransCanada is the state's licensee under the Alaska Gasline Inducement Act, or AGIA, and in exchange for $500 million in state money for specific work the company committed to meet 20 "must haves" specified by the state.

Denali is a joint venture by North Slope producers BP and Conoco Phillips.

Fackrell, Denali's president, said Denali has the advantage of decades of Alaska and Canadian construction and operational experience, has followed the advice of the Federal Energy Regulatory Commission and pre-filed for its certificate of convenience and necessity, has established an Alaska headquarters office and is spending its own money to move the project forward.

Palmer, president of TransCanada Alaska and a TransCanada Corp. vice president, said his company brings the advantage of in-house expertise: "We don't have to build an organization from scratch."

Palmer has frequently been asked about how many employees his company has in Alaska and he noted that TransCanada said in its AGIA application that until the end of the open season process -- when gas producers bid for space in the pipeline -- the company expected all of the work to be done in Calgary.

He said the company has gone beyond that and opened an Alaska headquarters; he said that between TransCanada and contractors 42 Alaskans have been employed on the project in short-term or permanent work.

THE COST OF REGULATION

Gas pipelines must obtain certificates of public convenience and necessity from FERC before construction begins, and pre-filing lets the regulator hire contractors to begin work.

Normally pre-filing is done after an open season. FERC wanted the companies to pre-file before the open season and Denali has complied with that request.

Fackrell said he thinks it is important to work with regulators and believes spending money now will be beneficial.

Palmer has told legislators in the past that TransCanada is focused on cost control and believes that early pre-filing would increase regulatory costs.

Palmer said TransCanada is in discussions with FERC on the pre-file issue and hopes to have it resolved soon.

Fackrell was asked about open-access issues of the Denali pipeline, when owners BP and Conoco control most of known North Slope gas reserves.

He said that Congress in 2004 gave FERC the authority to write the rules, and he suggested that legislators ask FERC to confirm that the line will be open access.

MERGING THE TWO PROJECTS?

Asked if Denali would partner with TransCanada to take advantage of that company's Canadian access, Fackrell answered that Denali's owners have said they would partner with anyone who could reduce risk and add value to the project.

But partnering with TransCanada is "very problematic" because TransCanada is the AGIA licensee.

He said they had a dilemma "because of the terms and conditions of AGIA." Denali's owners did not submit an AGIA application because they did not believe AGIA would result in a project, Fackrell said.

He said Denali doesn't see an advantage to partnering with TransCanada because of "impediments associated with AGIA."

NATIVE RIGHTS IN CANADA

Palmer was asked about suggestions that First Nations' issues haven't been addressed. He said TransCanada's right of way through the Yukon was obtained in 1983 and is recognized in an agreement between the Canadian government and all of the Yukon First Nations.

The circumstances for TransCanada are very different from those faced by a possible pipeline from the Mackenzie River delta in Canada, a project that had to obtain both access and benefit agreements with First Nations, Palmer said.

TransCanada's right of way gives the company access, he said.

Benefits are part of the Northern Pipeline Act and have been established for 30 years, Palmer said, but added that the company has sent letters to the Yukon First Nations offering to improve the benefits in exchange for participation agreements. He said several First Nations have expressed an interest and TransCanada has begun negotiations with two of them.

He said participation agreements would be positive for the project, but if those are not negotiated TransCanada will rely on legal terms and conditions established about 30 years ago.

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