Anchorage Daily News

JUNEAU -- If the Alaska Legislature awards TransCanada Corp. a license to pursue a natural gas pipeline this summer, it will come with a hearty price tag: as much as $500 million.

Whether that's a good use of money by a state that has a mixed investment record with seed money promises to be one of the hotter topics in a special legislative session that could last up to 60 days.

The session convened Tuesday, and formal hearings will start this morning.

Critics ask that if the project is potentially so profitable, why does the state need to put money toward it? They question the financial backing especially now that major oil companies Conoco Phillips and BP pledge to move forward on a competing pipeline proposal without seeking any state subsidy.

Proponents counter that the money ensures progress toward federal certification and helps keep tariffs low, which means better returns for the state. They also say the state avoids repeating mistakes of the previous administration, which would have made $10 billion in concessions to the state's North Slope leaseholders, BP, Conoco Phillips and Exxon Mobil Corp.

The half-billion dollars is being called a subsidy by some and an investment or venture capital by others.

Whatever the position taken, "it's not chump change," said Sen. Con Bunde, an Anchorage Republican who said he's starting to warm up to the idea.

"I'm becoming more comfortable that the state will get a return for the $500 million, but like every investment, there are risks," he said.

"Some people work for their money, some worry for their money," he said. "Alaska is getting in a position where we will worry for our money. We are playing with the big boys now."

PAYMENT PLAN

The state will first be on the hook for helping TransCanada with 50 percent of its startup costs, which include engineering studies and cost estimates. That's until the company finishes soliciting bids for gas from North Slope producers, known in the industry as open season.

After the open season, if it's successful, the state will pick up 90 percent of startup costs until the $500 million limit is reached. By then, TransCanada's share would be close to $130 million, said Pat Galvin, the state's revenue commissioner.

Galvin said the state not only receives a project timeline commitment from TransCanada but could see a financial return of $200 million thanks to lower tariffs, which are costs of shipping the gas.

"This is not a subsidy; it's a quid pro quo," Galvin said. "The value coming back to the state is tremendous."

CHECKERED PAST

The state's track record for investment conjures up memories of multimillion-dollar boondoggles, including:

• In the mid-1990s, the state backed construction of a coal plant in Healy with nearly $300 million in state and federal funds. That plant never opened and sits mothballed.

• Grain silos sit empty in Seward and Valdez, stark reminders of the state's failed anticipation of an agriculture export market that never came to fruition.

• A $125 million seafood plant in Anchorage failed to meet expectations of bringing economic diversity to the state's oil-driven economy.

DIFFERENT STANCES

"Anytime the state of Alaska has interfered in the free market, something foolish has happened," said Rep. Mike Hawker, an Anchorage Republican who serves on the House Finance Committee.

"We are not organized to make good decisions in the free marketplace," he said. "The market will ultimately determine the project that goes forward, whether the state puts up $500 million or not, so it seems to me we are getting nothing for the $500 million."

Rep. Mike Doogan, D-Anchorage, concedes that the state has had some economic development ventures that "have gone nowhere." But he says this is a "slightly different situation" and that he has no problem with the expense.

"It's not us spending money to make the gas marketable in the broadest sense," Doogan said. "There is a possibility that we could spend it all and not get a pipeline. It's a gamble; it's venture capital.

"The other thing you have to consider is the alternative. What happens if you don't go forward with TransCanada? You're stuck with the producers. You're back with what has proven to be a difficult and, in the end, fruitless negotiations with the same people on the same points."

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