Should the Palin administration start negotiating about "fiscal certainty" for the North Slope gas line -- right now? Apparently some legislators think so. That's because the North Slope gas holders told the Legislature this week they still want stronger assurances about how the state will tax a gas pipeline and the gas that goes into it.
That news worried Rep. Charisse Millett, co-chair of the House Energy Committee. Fiscal certainty, she said at Monday's hearing, is "a conversation we're all pretty aware we need to have." She seemed perplexed that the conversation isn't happening right now.
State Revenue Commissioner Pat Galvin told her why.
What the gas holders say they "want" isn't necessarily what they really need to make the project fly, he said. The state's multimillion-dollar analysis shows that a gas line is plenty profitable under existing fiscal terms, covering a wide range of price and cost scenarios. If the gas holders need something more to make the project work, they should say what it is and the state will consider it, Galvin said.
The state does have an offer of fiscal certainty on the table. In the TransCanada license, the state promises, in writing, to lock in taxes for the first 10 years the gas line is up and running.
To get that guarantee, a gas holder must sign on to the project next year, during TransCanada's "open season," when the competing gas lines formally ask gas holders to commit to their project.
The gas holders say the state's offer of a tax lock is not good enough. There seem to be two sticking points.
First, the state's promise is not a legally enforceable contract. Second, the 10-year tax lock is markedly shorter than the shipping commitments the gas holders will need to make. Those commitments might last 20 to 35 years.
The Palin administration has said it's flexible on the first point -- supplying a legally enforceable tax lock. In fact, Gov. Palin originally sought to do it that way in the state gas line license, but the Legislature refused, citing legal difficulties. The state constitution prohibits the state from surrendering its power to tax.
The Palin administration believes a 10-year contractual tax guarantee is within the range that might pass muster in court. The only surefire way to make a longer guarantee is to amend the state constitution, which requires voter approval. Otherwise, the longer the tax lock guarantee, the less "fiscal certainty" it offers because it could face a legal challenge.
So it appears the state can offer the gas holders more certainty, or more time, but it will be extremely hard to offer both.
There is still plenty of time to work out the fiscal certainty piece of the gas line puzzle. It doesn't have to be done until the gas holders state their intentions in next year's open seasons. Their offers may be contingent on negotiating fiscal terms with the state.
If that happens, it won't necessarily delay the gas line. As part of TransCanada's license, the state will pay 90 percent of the bills to keep pursuing federal permits as fiscal certainty and any other details are worked out. The project will keep moving forward. The current schedule allows four years from open season until all permits are in hand and the companies involved formally commit billions of dollars to the project.
For now, the Palin administration is standing pat on fiscal certainty -- and that's the right call.
BOTTOM LINE: The state shouldn't be rushed into talking about new fiscal terms for a North Slope gas line.