By Tim Bradner
Alaska Journal of Commerce

State legislators have been advised that TransCanada Corp.'s application for a state gas pipeline license under the Alaska Gasline Inducement Act does not qualify under the law because of conditions the Canadian pipeline company placed in its proposal.

A legal opinion by attorneys under contract to the Legislature conflicts with the position taken by Gov. Sarah Palin that TransCanada's application does qualify.

Palin announced Jan. 4 that TransCanada submitted the only qualifying proposal of five submitted under a solicitation for proposals for a pipeline license. One applicant that was rejected, the Alaska Gasline Port Authority, has asked for reconsideration of its rejection.

A Jan. 23 opinion prepared by Washington, D.C.-based law firm Saul Ewing for the Legislative Budget and Audit Committee argues that proposals in TransCanada's application for federal loan guarantees to cover construction cost overruns and a “bridge shipper” provision for the federal government to guarantee shipping commitments in an initial open season amount to conditions in its proposal, which is contrary to the state law and the terms of the solicitation for proposals.

“The application explicitly states (p. 2.2-71) that it is dependent on 'an acceptable agreement ... reached with the U.S. government,'” the opinion said.

Saul Ewing went on to cite other provisions in the TransCanada application, on page 2.1-4, that “If the credit support for the project (from the federal government) is not sufficient to finance construction of the project ... TransCanada will not proceed with the Execution Phase.”

“Presumably, the credit support would include two major financial conditions: Early access to the $18 billion federal loan guarantee, and the inclusion of the federal government as a bridge shipper,” to backstop TransCanada if the initial open season failed to attract enough commitments to ship gas, the Saul Ewing opinion said.

The state administration has argued that TransCanada has met the legal requirements of AGIA and is a qualified applicant.

State Resources Commissioner Tom Irwin told an Anchorage Chamber of Commerce meeting that the pipeline company's proposals for new federal guarantees are ideas the company suggested to enhance the project but are not conditions to its agreement to proceed under terms of the state law.

Tim Bradner can be reached

at tim.bradner@alaskajournal.com.