Legislature digs into gas, education, budgets


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JUNEAU — Legislators buckled down to work in Juneau as the 2014 session entered its second week. The focus of attention so far is on the big issues facing lawmakers this year: Gov. Sean Parnell’s natural gas pipeline deal with North Slope producers and TransCanada Corp.; the governor’s proposals for education reform and the state budget, which will be very lean this year because of reduced revenues.

On the gas pipeline, the governor’s bills were introduced Jan. 24 requesting lawmakers to approve certain statute changes allowing the deal to go forward were. They are House Bill 277 and Senate Bill 138.

At the Senate Democrats Jan. 29 briefing, Sen. Bill Wielechowski, D-Anchorage, said Parnell’s plan bears “striking similarities” to Stranded Gas Act and that it allows, “an unelected bureaucrat to give the producers billions of dollars through a simple negotiation.”

“We’re setting up a process here where, if we pass this bill, we’re telling the commissioner to go negotiate a contract and come back next year and the Big Three have absolute veto power of any bill,” he said. “We are locking ourselves into a position where we are sole-sourcing.”

Hearings began Jan. 27 in committees in the House and Senate Resources committees, with deliberations continuing through the week.

State Natural Resources Commissioner Joe Balash and Revenue Commissioner Angela Rodell and Deputy Revenue Commissioner Mike Pawlowski trooped from committee to committee with presentations and to answer questions on the deal.

The Legislature Budget and Audit Committee organized a “LNG 101” overview Jan. 28 for experts to brief legislators on overall trends in the global liquefied natural gas industry.

So far legislators seem receptive and interested.

“I like the idea that we can have a equity share, but we need to learn more of the details,” Sen. Kevin Meyer, R-Anchorage, said during a Senate Majority briefing Jan. 28.

Sen. Pete Kelly, R-Fairbanks, said, “We’ve been talking about a gas pipeline for 30 years. This is the closest we’ve ever come.”

“My takeaway so far is that this is a great plan, but our ace-in-the-hole is that we are well covered, with a backup plan, to get gas to Alaskans. If the big pipeline stalls we still have the (state-led) small pipeline chugging along,” Kelly said, a reference work underway by the state-owned Alaska Gasline Development Corp. to develop a 36-inch gas pipeline as a backup plan.

Democrats in the state House said earlier they would like to see a broader range of energy consultants retained to help the Legislature review the deal. Republican leaders, however, said for now advice will come primarily from a team the Legislature has retained over several years for advice, Nikos Tsafos and Janak Mayer, along with Anchorage petroleum economist Roger Marks.

There has also been muted criticism of the “up or down” nature of the Legislature’s approval of the deal, in that the agreement itself cannot be amended of modified by legislators.

The statute changes are bills allowing the state to take its tax share in-kind, in the form of gas, and changing the structure of the gas production tax from a net profits to gross revenues tax, which can be amended.

But lawmakers will not be asked to vote, at least this year, on the deal itself. That will come next year, in 2015, if the bills making the tax changes pass this year. The critical matter before the Legislature in 2015 will be approval of a long-term contract committing state-owned gas to TransCanada Corp., which will own a part of the gas pipeline. That will be a large financial commitment in which the state will purchase capacity with TransCanada to ship state gas on a “take or pay” basis, meaning the state will be on the hook for several billion dollars of payments possibly over two decades, or more.

The deal also involves the state-owned Alaska Gasline Development Corp. financing, and owning, a share of the large liquefied natural gas plant proposed for Nikiski, near Kenai. TransCanada will invest in the gas treatment plant on the North Slope and the pipeline, but will not be part of the LNG plant. 

Legislators may not like having to vote up or down on a deal the state administration has negotiated but it would be extremely difficult to conduct negotiations within legislative committees on such a large, complex project.

There are precedents for this, also. Changes to state leases for the Northstar offshore oilfield on the North Slope negotiated between BP and the state in 1996 were sent to the Legislature for an up-or-down vote by Gov. Tony Knowles, even though it was not legally required.

The issue was controversial at the time and legislators wanted to have their stamp on it, mainly commitments to hire Alaskans and build modules in the state that could not be part of the lease agreement itself. In fact, the state cannot legally require those.

BP solved what was a political problem by making voluntary commitments, outside the agreement itself, to build modules and hire and train local workers, which it honored when large process modules for the field were built in Anchorage.

Meanwhile, subcommittees of the House and Senate Finance committees have started their work on the operating budgets of state agencies. Work on the capital budget will begin soon.

The governor hopes to reduce the operating budget but “formula programs” like Medicaid and to a certain extent education, where spending is set out in statutes, are big cost-drivers, which leave the governor, and legislators, a narrow set of choices because they can then only reduce agency operations.

“Formula programs can be reduced but the statutes that govern these will have to be amended,” state budget director Karen Rehfeld said in an interview. “Our Medicaid program, for example, has eligibility requirements and payment standards that we establish.”

Such changes are possible, but they are complex and would have to be done carefully.

David Teal, director of the Legislative Finance Division, said the governor is requesting a $15.4 million reduction in unrestricted general fund spending next year.

“This would be a remarkable achievement. While there are some increases (allowed) in the governor’s priority programs and almost inevitable increases for formula programs, most agencies will operate with less unrestricted general funds than in FY 2014 (the current budget year),” Teal said in an analysis of the governor’s budget provided to legislators.

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