Johnny Ellis Newsletter - Latest from the Special Session

June 13th, 2008
COMING HOME

Friends and Neighbors,

The legislature has met every day since convening June 3rd for extensive presentations by experts and spirited questions and debate between lawmakers. It was a string of long working days, including Saturday and Sunday. The experts included Governor Palin’s gas line team and the consultants they have hired, as well as independent consultants hired by the legislature to provide an outside perspective. The hearings have hit the road, with meetings in Fairbanks yesterday, today, and tomorrow, and will come to Anchorage starting Monday.

The Anchorage hearings will be held at the Howard Johnson hotel at the corner of 4th Ave and C St each weekday from 9 AM to 5 PM, and are open to the public. On Wednesday and Thursday from 6 to 8 PM, we will open the floor to public testimony so that everyone can make their voice heard. These hearings are a great opportunity for each of you to immerse yourself in this important discussion. You can find a detailed schedule of the week at www.aksenate.org.

Here’s a quick recap of the basic questions involved:

Where are we now? Last year, the legislature passed the Alaska Gasline Inducement Act (AGIA), which laid out the state’s incentives to build a pipeline and a set of must-haves that applicants needed to provide to receive those incentives. The administration has decided that only one applicant, TransCanada, fulfilled all of those must-haves in their application. Now, the legislature has to decide whether to award the license, and the incentives that go with it.

What are the incentives? And what do we get in return? The most visible of the incentives is $500 million in matching funds to the winning applicant. Along with that, however, the state also commits to a number of non-financial requirements, such as not providing assistance to a competing pipeline. In exchange, TransCanada agrees to take the project through FERC certification (the required federal approval process) and open season (accepting bids for gas to put down the pipeline), as well as in-state accessibility, Alaska hire, and other provisions. The $500 million will be used to lower tariffs on the line, to the point where over the first 25 years of the project, the state will earn an additional $1.2 billion.

What about the producers? Nothing in AGIA or in the license prevents anyone – BP/ConocoPhillips, TransCanada, or anyone else – from building a pipeline without state assistance. The producers submitted a proposal outside of AGIA which did not provide the guarantees the state was looking for, either in terms of a commitment to build or commitments on how a line would operate after it is constructed. However, TransCanada has always said that it is open to a partnership, and this seems to be a likely option.

Who is TransCanada? Although they are new to Alaska , TransCanada is one of the largest pipeline companies in the world, having built 36,000 miles of pipeline in Canada , the U.S. , and Mexico . They have a track record of completing extremely large projects on time and on budget, and every financial expert we have has confirmed their technical ability to construct this gas line.

How much gas is there? Right now, there are approximately 35 trillion cubic feet (tcf) of proven reserves on the North Slope , and average estimates of undiscovered conventional resources total an additional 227 tcf. This is a world-class gas basin – among the largest remaining unexplored regions on the planet.

What happens next? The legislature has to approve or deny the license by midnight on August 2nd. After we finish our statewide hearing schedule, we will return to Juneau for that vote. If we award the license, TransCanada will begin work. If we don’t, we’ll need to go back to the drawing board and figure out another way to bring our reserves to market.