GUEST COMMENTARY: It is time to remove TransCanada from AGIA
Unfortunately, many Alaskans believe that the reform of ACES is the reason for all of the fiscal year 2015 budget deficit. This is not the case. While there is deficit of $1.1 billion in the FY 2015 budget, the remaining shortfall is due to other factors: First, the governor has correctly decided to provide $3 billion to the state’s Pension Fund to reduce payments later on; and second, the decline in flow of oil continues and the price of oil is also going down.
This combination of spending and declining oil revenues will make it necessary to withdraw funds from Legislative Budget Reserve and the Constitutional Budget Reserve to cover the FY 2015 and future budgets.
Given this situation I urge that we not continue to fund overlapping energy projects. Over the last several years the administration and the Legislature have authorized the following:
1. $557 million has been expended over the last 9 years on consultant fees and reports;
2. In the last session the Legislature approved $355 million dollars for the in-state Bullet line on top of $72 million from former years;
3. The Legislature committed $332.5 million dollars in grants and loans to truck North Slope gas to Fairbanks; and
4. The Legislature appropriated $95 million to advance Susitna hyrdro.
While these funds are not all appropriated, they amount to $1.3 billion, a good portion which has already been spent.
We have already paid $280 million to TransCanada and, unless the governor can strike a business deal with TransCanada by which it forgoes the remainder, we still have the obligation to pay approximately $220 million.
So if we add that $500 million to the above list, we are up to $1.8 billion. (Just what consideration the state got from AGIA has yet to be clearly identified).
Accordingly, for the following reasons the governor is right to reduce FY 2015 revenue shortfalls by making a business deal to terminate the remainder of the $500 million subsidy to TransCanada:
1. TransCanada was the only bidder on the gasline from the North Slope through Alberta to Chicago. TransCanada had property rights to this route through Canada. The discovery of shale gas made the project no longer economic and thus the route through Canada has little value;
2. TransCanada has no gas. So, it is hardly in commercial alignment with the producers and the state’s royalty gas, nor is it in a position to expect fiscal certainty from the state; and
3. AGIA limits the volume of gas for the in-state line to 500 million cubic feet per day.
However, it would be a major mistake for the administration to grant TransCanada an equity position in the pipeline as part of any such business deal. First, the state has paid TransCanada $280 million for the work it has done on the gasline.
Second, for the reasons listed above, its role has changed from negotiating an agreement with the producers on a line through Canada, to joining the producers as another player with which the state is negotiating an LNG contract.
(I believe the State erred significantly by outsourcing the negotiations with the producers on the state’s behalf to TransCanada. This was the constitutional obligation of the state, and not one to assign to a third party.)
Third, because TransCanada has no gas it brings nothing to the table. The project can pay TransCanada as a contractor to construct the pipeline without giving it an equity position.
In short, the equity position in the pipeline should belong to the state to the same proportion it is supplying gas to the project. In the draft contract negotiated by my administration, this was 20 percent.
Frank Murkowski was governor of Alaska from 2002-06 and was a U.S. senator for Alaska from 1981-2002.