TransCanada says bill may violate license

AGIA: Gas line official defends project.

April 4, 2011 

JUNEAU -- TransCanada Corp. on Monday disputed the legality of a bill that's a first step toward dumping the state-subsidized natural gas pipeline project.

TransCanada Vice President Tony Palmer said it appears to violate the license the state gave his firm under the Alaska Gasline Inducement Act.

"It appears to violate the AGIA license agreement, it appears to change the rules," Palmer argued. "It raises uncertainty about the state's support of (the project) at a critical time."

Palmer told the House Finance Committee the work toward a $40 billion natural gas pipeline to the Lower 48 is moving forward. Many legislators think it's not going to happen, and a consultant testified Monday that the project isn't economical.

Legislators are growing increasingly frustrated with their obligation to reimburse TransCanada up to $500 million in state money under AGIA. Several suggest it's about time to pull the plug on the effort.

Don Bullock, an attorney for the Legislature, told the finance committee he does not think the bill breaches the state's contract with TransCanada. All the bill does is request information, Bullock said.

The bill says "it is rebuttably presumed that the project is uneconomic" if TransCanada doesn't have agreements with gas shippers by July 15 that are adequate to support construction of the project.

The state commissioners of revenue and natural resources would then have to submit a report saying whether they have any evidence the project is economical. The Legislature would use the report in deciding whether to continue to appropriate money for the project. The state has reimbursed TransCanada $50 million so far and anticipates spending about another $75 million by July.

TransCanada is eligible to have 90 percent of pre-construction costs reimbursed at this point and Gov. Sean Parnell is asking the Legislature to set aside an additional $160 million for 2012. The Legislature's lawyer said there is a process for backing out of AGIA if it's found to be uneconomical.

'WE HAVE NOT LOST HEART'

House Speaker Mike Chenault has said that "there is support here to just scrap the whole AGIA process." The House majority on Monday distributed a poll by Dittman Research saying 61 percent of the 400 Alaskans polled believe the state should cut its losses and not provide any more money.

Monday's testimony on Chenault's House Bill 142 was the first time this year that TransCanada, which is working on the pipeline project with Exxon Mobil, came to Juneau to speak in front of the Legislature.

TransCanada's Palmer said his company's legal department won't put out an opinion of the bill before it passes. But he said that, as a businessman, he sees it as a breach of the contract.

Palmer said his company has not missed any of the deadlines in the time schedule that the Legislature approved as part of AGIA. The bill would essentially demand it have project financing three years early or face the presumption the pipeline is uneconomical, Palmer said.

TransCanada did miss a self-imposed deadline to have signed agreements with gas shippers by the end of 2010. Palmer said his company is still working to complete the deals, called precedent agreements.

Palmer said the agreements haven't happened yet because the shippers requested changes that are being negotiated. He said other factors are uncertainty over the disputed Point Thomson field on the North Slope and how much the state will tax.

Palmer said that "we have not lost heart" the pipeline can be built. He told legislators the pipeline is still on track, if all goes well, for construction in 2020.

Roger Marks, an oil and has consultant working for the Legislature, told the House Finance Committee he believes it is not economical to commercialize North Slope natural gas in the near future.

The markets have changed enormously since the state awarded TransCanada the AGIA license in 2008, he said. The main reason is the huge shale gas reserves in the Lower 48, Marks said.

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