Legislative audit to investigate money transfers at state-led gas line agency

Does the state gas line agency have a full $100 million in public funds to spend planning a large gas pipeline, as Gov. Bill Walker's appointees say, or must a quarter of that money go only toward an all-but-abandoned small diameter line, a pet project of two former top Republican House members?

A legislative committee, chaired until next month by one of those two Republican House members, has ordered an audit that could determine whether the agency, the Alaska Gasline Development Corp., has the legal authority to spend the money set aside for the smaller line. For the state to take over planning for the Alaska LNG project this year from oil companies ExxonMobil, BP and ConocoPhillips, the AGDC is planning on using all $100 million it has in the bank, including funds appropriated by the Legislature for the Alaska Stand Alone Pipeline project.

Alaska LNG is a $55 billion project to liquefy natural gas from the North Slope and ship it to Asia, with some gas set aside for in-state use. ASAP, initially pushed by House Speaker Mike Chenault, R-Nikiski, and Budget and Audit Committee Chairman Mike Hawker, R-Anchorage, was designed to provide gas for Alaska, but lacking economies of scale it has been criticized as a project that will result in big charges for most gas users.

Hawker is retiring from the House and Chenault won't be speaker when the Alaska Legislature convenes next month. But in one of his last acts as a representative, Hawker led the budget and audit committee on Dec. 13 to approve the audit.

Keith Meyer, president of the AGDC, asserts that his agency has about $100 million to spend on the project. But the audit will address questions about the agency's legal authority to spend all that money, including $27 million in a fund to support ASAP. Hawker and Chenault have said the smaller project would reduce in-state energy costs and serve as a back up in case a larger project failed.

The two projects share similarities that could favor AGDC's view, some officials said. Both projects involve pipelines moving gas from the North Slope to Southcentral Alaska, often along a similar route running adjacent, part of the way, to the 800-mile trans-Alaska pipeline corridor. And while the large-diameter line would export gas overseas, both projects aim to deliver cheaper energy to Alaskans.

Both projects are also economically challenged. They were seeded with money from the Legislature before oil prices began sliding in summer 2014, leading to a long-term slump that has made Alaskans increasingly anxious about state spending amid multibillion-dollar budget deficits.

The smaller-diameter line is now essentially on standby as the state under Walker throws its efforts behind Alaska LNG.

Some legislators question whether the agency has the right to transfer the money from ASAP to the Alaska LNG project. The Alaska LNG fund contained $82 million as of Nov. 21, according to an estimate from the nonpartisan Legislative Finance Division. But including the money from the smaller fund, the state would have $109 million.

Hawker, who has criticized the governor's plans for marketing Alaska's gas, requested the audit by the Legislative Audit Division.

In his Dec. 2 request, Hawker wants to know if the agency is spending money in line with legislative intent and legal restrictions associated with each fund. The audit should also answer whether AGDC has about $100 million to spend on Alaska LNG, among other matters.

Hawker, undergoing treatment for cancer, did not respond to requests for comment. But he told the budget and audit committee Dec. 13 that the audit can leave the state with a "clear" understanding of the corporation he helped create, and where it's headed.

The goal is "a formal report on what has transpired with AGDC, since there has been quite a few changes in the last couple of years over how we intended it to be established and function," he said.

The audit was approved without opposition.

Hawker said Sen. Cathy Giessel, R-Anchorage, is a lead partner in the audit.

Giessel, a member of the budget and audit committee, said her primary question is whether the agency can spend the money intended for the small project on the larger project, without new legislative approval.

"The big question I have is that movement of the money," she said.

State spending on the Alaska LNG project has become increasingly controversial in recent months after the state's oil company partners decided to stop pursuing efforts to receive construction approval from the Federal Energy Regulatory Commission. The companies have cited the project's huge costs, low LNG prices, and a glut of competing projects around the world.

The state plans to fully take over the project early next year. On the agency's plate will be answering more than 400 pages of questions and comments about the project, sent in recent weeks by FERC and covering such things as mitigation plans for pipeline construction, plans to protect birds, and impacts from truck traffic.

Meyer has said AGDC can accomplish it with the money from both funds.

More costly would be the final engineering phase of the project that would come next. That phase, known as FEED, or front-end engineering and design, has been estimated by the oil companies to cost up to $2 billion.

Walker and AGDC officials are hoping to lower the cost of a state-led project by winning federal tax breaks. Walker and others have also marketed the project on trips to Asia this fall, hoping to win gas commitments from utilities that attract investors. Walker has said he won't spend state savings on the project.

David Teal, director of the legislative finance division, said he believes AGDC can legally spend money intended for the smaller line on the big line, for common activities.

"AGDC has argued and we can't refute the fact that they can move money from either fund to do work on the common activities," he said, such as answering permit-related questions, or the many shared portions of the pipeline route.

But Teal said the Legislative Audit Division may have a different opinion.

Kris Curtis, legislative auditor, said the audit may not begin for close to a year, given that it's in line behind 10 other required audits for state boards and commissions that will sunset unless the Legislature extends them.

But she wouldn't offer an opinion on the mingling of the two funds.

"That's something we'd look at," she said.

Giessel said her support for the audit comes in response to constituents in her Southeast Anchorage district who, she said, are extremely concerned about continued spending on the project.

The four Alaska LNG partners have spent about $600 million on the project since 2012, with about $150 million of that from the state, officials have said.

While Giessel questions AGDC's authority to transfer money between funds without legislative approval, she said she's willing to spend another $100 million and possibly more to secure valuable FERC authorization.

That approval would likely have a time limit, but could be important if conditions change and the project generates new interest from buyers or investors.

"If you don't finish or get a FERC license completed, you've wasted all those millions you've spent," she said.

How much more should the agency spend? The Legislature will have to weigh in on that before it agrees to provide any additional money, she said.

Walker has said he'd back off the project by Sept. 1 next year if the gas market, principally in Asia, doesn't show enough interest. But he did not directly respond to an emailed question asking whether AGDC should spend the roughly $100 million left.

Instead, in an emailed statement, Walker said the project has competitive advantages over others being developed worldwide, including proximity to Asia. It would revitalize the state's economy, create more than 10,000 jobs during construction, and lower energy costs in Alaska, among other benefits.

"Now is not the time to shy away from engaging in the global arena for Alaska's future, nor is it the time for infighting," Walker said.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or