AGIA gains ground in Legislature
Alaska Gov. Sarah Palin’s proposed legislation setting the framework for new natural gas pipeline proposals has cleared two additional hurdles in the state Legislature, but not without receiving several changes along the way.
Key elements of the governor’s proposal, mainly having state officials choose a pipeline developer that commits to meet certain goals, are still intact in the legislation, however.
The House Resources Committee completed amendments April 24 on its version of the bill. Meanwhile, the Senate Judiciary Committee completed work on the Senate version April 21 and passed the measure on to the Senate Finance Committee, which began hearings April 23.
Palin’s bill was approved in late March by the Senate Resources Committee and the House Oil and Gas Committee.
Among changes made in late-night meetings April 23 is a change in state royalty policy that could eliminate one roadblock to a pipeline that producing companies cite, the current ability of the state to switch between royalty payments in cash, known as “in value,” to royalty in the physical delivery of gas or oil, known as “in kind.” The state can currently make the switch on six or nine months’ notice to producers. The Resources Committee opted to limit the state to taking royalty in value for gas committed to a pipeline licensed by the state. Producers have said that the switching at short notice creates serious burdens in negotiating long-term sales contracts and in purchasing long-term capacity commitments in the pipeline during an open season.
State Revenue Commissioner Patrick Galvin expressed concerns about the change. “We support the amendment in concept but have worries about some of the practical effects,” such as how the change would mesh with goals to assure gas supplies to Alaska communities near the pipeline, Galvin told the House committee.
The Resources Committee turned down proposals to make the selection process more flexible for the state, however, and proposals to include punitive measures such as a gas reserve tax that would come into effect if producers fail to sign capacity agreements with a licensed pipeline during an initial open season.
A substantial change made in the Senate bill by the Judiciary Committee would establish a voucher system for a company that purchases capacity in a pipeline but is not a producer. The voucher can be transferred to a producer that agrees to sell gas to the pipeline. Upstream inducements include special terms to freeze state production taxes for 10 years and to set firm royalty administration terms. Lack of clarity in royalty administration has created a minefield for disputes and litigation between the state and producers in the past.
The legislation must still be approved by the Finance committees in both the state House and Senate before the Legislature adjourns in mid-May. If the bill passes, which now seems likely, Palin said she intends to have requests for proposals for pipeline developers out by early July. The schedule would ask for proposals to be submitted by October, and a project would be selected for a state license by January 2008.
The winning project would qualify for $500 million in state matching funds. Under the bill, producers that sign capacity agreements at an initial open season would qualify for the upstream inducements.
Palin’s approach is substantially different than a contract former Gov. Frank Murkowski negotiated with the three major North Slope producers in 2006. That agreement involved the state investing in 20 percent of the project, agreeing to take the gas royalty and tax share in kind for the duration of a 45-year contract, and for a long-term freeze on oil as well as gas production taxes. The Legislature failed to ratify Murkowski’s contract, and he was defeated in his bid for re-election last fall by Palin.