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Alaska Gov. Walker calls special legislative session on gas line megaproject

Alaska Gov. Bill Walker on Thursday called state lawmakers to a special legislative session in Juneau next month, challenging them to toughen their stance toward oil producers working with the state on a natural gas pipeline megaproject.

Walker's proclamation ordered the special session to start Oct. 24. It calls for lawmakers to consider a tax on natural gas unproduced in the ground on the North Slope as a way to push the pipeline project forward -- an idea that's sure to be controversial and that was soundly defeated in a 2006 ballot measure.

But in a prepared statement to news media, a video message, an 11-page project review, and a phone interview Thursday, Walker laid out an argument for changing the pipeline project's framework written by former Gov. Sean Parnell's administration and approved by the Legislature last year.

The current deal leaves Alaska at the whims of its three oil company partners in Alaska LNG, the pipeline and liquefied natural gas project, Walker said. And, he added, it gives the state few tools to push the project forward on its own schedule.

With the state facing a $3 billion annual deficit and dwindling reserves, more urgency is needed, he said.

The current structure for the project leaves it to move at the pace of the least hurried producer, according to Walker's review -- a producer that he wouldn't name in an interview but which had the characteristics of ExxonMobil.

"Alaska needs leverage. We don't have the leverage now -- we need leverage for a level playing field. That's what this legislation will create," Walker said in Thursday's video message, which shows him in his Anchorage office clad in a tie checkered with miniature Alaska flags. "But what we'll need is the political will and courage to get it done."

The announcements Thursday were the latest twists in Alaska politicians' decades-long quest to build a natural gas pipeline -- a subject that tied the governor and lawmakers in knots during the regular legislative session earlier this year.

The project, which could cost up to $65 billion, is viewed as one potential fix to the state's budget crisis, which stems from dwindling oil production and a crash in oil prices.

But there are sharply diverging views about the best way forward, and the best posture to take toward the state's oil producers.

Walker is a former oil and gas attorney who worked on litigation opposing the state's pipeline project partners on issues like taxation, and his stance is more oppositional. The Republican-led majorities in the House and Senate, which include two Republicans who work for an oil company, have pushed for a more cooperative approach.

The state's oil company partners on the Alaska LNG project -- ExxonMobil, BP, and ConocoPhillips -- either declined to comment or didn't respond to messages late Thursday. But Walker's reserves tax concept, even without details, drew swift concern from majority lawmakers, who said they were blindsided by an idea that never came up in meetings about the special session.

"This wasn't on our radar," Rep. Charisse Millett, R-Anchorage, the House majority leader, said in a phone interview. "I'm confused -- I know that my leadership is confused and doesn't understand how the reserves tax will move the project forward any faster."

Walker said in the interview that the gas tax, as it was envisioned in the 2006 ballot measure, was based on the volume of gas in the ground and would have produced about $1 billion in annual revenues for the state.

His own proposed tax would not be assessed that way, Walker said. Instead, it would likely be assessed based on "certain milestones" in a pipeline project's progress. He declined to be more precise and said the bill would be released "in the next week."

Kara Moriarty, the president of the Alaska Oil and Gas Association, an industry group, called the idea of a gas reserves tax "punitive" and, like Millett, cited its 2006 defeat.

"You can't tax a project into existence," she wrote in an email. "The Administration is creating a tremendous amount of uncertainty and instability for the industry."

By proposing the gas tax, Walker is setting up a "contentious special session," said Sen. Bill Wielechowski, D-Anchorage. He said he expects stiff opposition to the tax from the oil industry and from the legislators it supports.

"I expect there's going to be fireworks," he said in a phone interview.

He disputed the assertion that the rejection of the 2006 ballot measure would mean a similar fate for a gas tax proposal this time around, saying that the state is facing new challenges.

"At that point, I think I voted against it -- I just thought we weren't ready for it," he said. Now, he added, "we've tried everything, and I think at this point, Alaskans are fed up. We're facing a fiscal crisis and we've got huge deficits, and I think a lot of people look at the gas line as our economic future."

The gas tax is one of two subjects listed on Walker's special session proclamation. The other is a bill to authorize spending on the pipeline project -- including an estimated $80 million to buy out the ownership stake of a pipeline company, TransCanada, another Alaska LNG partner.

TransCanada currently owns one fourth of the pipeline portion of the project, as well as one fourth of a gas treatment plant that would be constructed on the North Slope. The Walker administration wants to buy TransCanada's share to give the state more control over the project, and to increase its share of revenues from the pipeline once it's built.

That plan is not as contentious as the proposal for a gas tax. But it would force the state to take on more risk, said Senate President Kevin Meyer, R-Anchorage.

"We haven't seen the numbers. But my gut just tells me when you're dealing with a $70 billion project, you want to share the risk as much as possible," said Meyer, who works for ConocoPhillips. "I'm not so sure we don't want them involved, but again, the numbers will speak for themselves."

The Walker administration also wants to pay for the buyout with money from a state savings account, the Constitutional Budget Reserve -- a move that requires a three-quarters supermajority vote, which could be a high hurdle.

Had Walker confined his special session to the TransCanada buyout, Meyer said, it's possible lawmakers could have finished their business within a week or two. But the gas tax proposal will complicate things.

"This, I think, is going to take the full 30 days," he said. "It's a big issue."