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Walker's promised veto on gas line bill reflects philosophical, political divide

  • Author: Dermot Cole
    | Opinion
  • Updated: September 28, 2016
  • Published April 16, 2015

FAIRBANKS — Gov. Bill Walker faces a Saturday deadline to act on his pledge to veto a gas line bill hurriedly approved by the Alaska Legislature to allow for an override vote before the session ends, a divide that stems from a deep disagreement about how best to deal with the three largest oil companies in Alaska.

At its center, the fight is about conflicting philosophies as the state and the oil companies embark on the latest in a long line of proposed pipelines. The ruling Republican majorities envision the state and the oil companies marching forward — more or less in unison — on a shared pipeline vision, capable of working out any disagreements that might derail the gas pipeline partnership.

Many of the GOP leaders, fans of former Gov. Sean Parnell, believe that they put the state on the straight and narrow path to a pipeline a year ago and object to Walker's revisions. They portray his plan for a backup export project as a signal to the oil companies that the state is not committed to its agreement.

"You have made clear your desire to have a parallel project to use as leverage against our Alaska LNG partners in order to force changes in existing contractual terms," House Speaker Mike Chenault and Senate President Kevin Meyer said in a letter April 10.

Walker counters that it is not a matter of using leverage against the oil company partners, but of using leverage to protect Alaska. He said the oil companies understand this. Partners or not, many of the key details about the pipeline project have yet to be negotiated and Walker says he is only doing what the oil companies do for themselves — preserving options.

The GOP legislators say the state is in a powerful position without a backup plan. "We fail to see why a $185 million alternative is required — particularly an alternative that has not received legislative or public support," they said.

The state's leverage "is industry's need to have the state participate as an equity owner in this LNG development," according to the Chenault and Meyer letter. Plus, they say, "the state is a full participant in the Alaska LNG project, with the same rights, options and powers to negotiate as any other party."

The GOP legislators trust the ability of the state to negotiate fair deals with the oil companies and believe the power of the profit motive will move the project ahead. If the project does not proceed because it is not feasible, "we will not understand the circumstances behind that decision until the time that decision is made."

Walker has a different view of leverage and the state's power. For one thing, he says, "feasible" doesn't mean the same thing to every partner. The oil companies may need a 14 percent return or higher on the gas treatment plant, the pipeline and the LNG plant. The state may find an 8 percent return feasible.

He said he wants the state to move forward with its partners as far as possible. But Walker argues that the chance of encountering irreconcilable differences is real and that the best way to maintain leverage is to have a backup plan. It's a "Trust everyone, but cut the cards" approach.

Walker said he will veto HB 132 because it would prohibit the state from promoting a backup plan for exporting LNG, the alternative that he considers crucial and legislators claim is crazy.

Key issues that have yet to be negotiated include the tax rate on gas, the value of Alaska's share of the gas, property taxes and other questions. It is also possible that the oil tax rate could figure into future negotiations as well to improve company economics.

If the state and the oil companies don't negotiate deals that all consider acceptable, any of the partners can pull out and stop the entire enterprise for months or years while reworking the details, Walker said.

"Each participant in the project has a responsibility to represent the interest of its shareholders to the best of its ability," Walker said in his seven-page letter April 10 to Chenault. "Our shareholders are the people of Alaska."

The shareholders of the oil companies may best by served by other projects, he said, an option that the state does not enjoy.

Without a backup pipeline plan, the governor says, "if the fiscal terms deemed necessary by our AKLNG partners are not acceptable or constitutional, my only option will be to withdraw from the AKLNG project — an option I hope not to have to exercise."

HB 132 would force Alaska to be dependent upon a finding by the oil companies and TransCanada that the Alaska project is "the most attractive of each company's potential projects around the world," said Walker.

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