JUNEAU — The Alaska House Finance Committee on Monday rejected Gov. Bill Walker's $40 million budget request for the state's proposed natural gas pipeline, reflecting what lawmakers said was their uncertainty about the $55 billion project's next steps.
Committee leaders expect next week to put enough money back into the budget to pay for completion of a key pipeline planning stage. But some of the work initially proposed by the Walker administration was premature, like a marketing unit that would start trying to sell the state's gas, said one of the committee's co-chairmen, Rep. Mark Neuman, R-Big Lake.
"Let's make sure we have a gas pipeline before we spend money," Neuman said in an interview. "Why do we have to be concerned about marketing at this point? We're not there yet."
The state is pursuing the massive project with oil companies ConocoPhillips, ExxonMobil and BP. The pipeline would run from the North Slope to the Kenai Peninsula.
The pipeline is still in the development stages, with completion of preliminary engineering and design, or pre-FEED, set for later this year.
A decision on whether to move into a more expensive, detailed planning phase is scheduled for mid-2017. But at a news conference in mid-February, Walker said low oil prices would likely force unspecified changes to the framework for the project.
Rep. Les Gara, D-Anchorage, said he didn't object to the decision by the finance committee's Republican leaders to strip the money from Walker's budget, given the potential for those changes.
"I think the finance chairs are right to say: 'Is the amount of money asked for before still the right amount of money now that the project has changed?'" Gara said in an interview. "I like the governor. I don't have an understanding of what the new project might be, because I don't think he does yet."
Lawmakers now understand that Walker's mid-February news conference was called in part because one of the companies, ConocoPhillips, won't be able to continue with the project after pre-FEED because it was short on cash, said Gara, who sits on the finance committee.
Globally, oil companies are watching their pocketbooks due to the current low prices.
Amid the downturn, ConocoPhillips announced in early February that it was cutting its dividend by two-thirds, and it said it lost $3.45 billion in the fourth quarter of 2015.
"My understanding is they're fine selling the gas, they're fine having the project -- they just don't have the money to pay for their share," Gara said.
A spokeswoman for ConocoPhillips emailed a prepared statement that didn't confirm Gara's remarks, but didn't directly dispute them either.
"ConocoPhillips is committed to working through pre-FEED on the project and will evaluate our options when that stage is complete," said the spokeswoman, Natalie Lowman.
The Legislature has already approved $60 million for this year's share of the bill for the pre-FEED work being done by Alaska LNG, the consortium the state has formed with the three oil companies.
But Walker, in his proposed state operating budget, wanted to spend an extra $40 million for three departments and the Alaska Gasline Development Corp., which holds the state's interest in the pipeline project.
That included $13 million for AGDC's operating budget, and another $2 million requested for the state law and revenue departments. And $26.5 million would go to the natural resources department -- some of which would be used for the marketing program to try to sell the state's gas.
The leader of the marketing effort, who hasn't been hired, would get up to $1.1 million in salary and $350,000 in benefits.
But all the money was stripped out in a substitute budget released Monday by the House Finance Committee. The departments will ultimately submit new budgets solely to cover the costs of pre-FEED, which the committee will consider next week, an aide to Neuman said Monday.
Asked about the decision, a spokeswoman for Walker, Katie Marquette, emailed a prepared statement.
"We understand the House is looking for additional information on the Alaska LNG budget," it quoted Walker as saying. "We will be resubmitting our budget request for the project and anticipate it will be funded for fiscal year 2017."
The new budget from the House Finance Committee also calls for another big change: using $25 million from the Power Cost Equalization Fund to help pay for the state university's budget.
The $900 million fund operates as an endowment, subsidizing rural power costs to bring them closer to urban prices. But the fund earns more money than it needs each year to match its legally required payments, Neuman said.
One of Neuman's rural colleagues, Rep. Bob Herron, D-Bethel, said he prefers another plan for the endowment fund: a bill from Sen. Lyman Hoffman, D-Bethel, that would split up the excess earnings among the state's general savings account, renewable energy grants and the power fund itself.
"I like Lyman's plan," Herron said in an interview. "We're going to have competing efforts."