Feb 7: Transcanada. "We're not obliged to build the pipeline"
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It took almost two hours of Transcanada's testimony on Wednesday in the Senate Resources committee to get to the bombshell.
For the last month, questions have been raised about Transcanada's AGIA application. Was it laced with contingencies that conditioned their commitment to building Alaskans a natural gas pipeline?
Apparently not. According to Transcanada executive Tony Palmer, AGIA doesn't require them to build a pipeline.
"We're not obliged to build the pipeline, it is not what AGIA requires" Palmer stated when asked about construction decision timetables.
This apparently explains why the administration and Transcanada have brushed off concerns about the sole survivor of the AGIA process having conditioned their application to build the Alaska Natural Gas Pipeline.
After all, one could argue there is no way their AGIA application can be construed to be conditional regarding construction of the pipeline if AGIA doesn't require them to construct the pipeline in the first place.
Does any of this make sense?
Especially considering the AGIA process was sold to Alaskans as the best way to build the Alaska Natural Gas Pipeline?
So if Transcanada is not required to build the pipeline under AGIA, why are we on the verge of granting them an exclusive license to build the pipeline, seeding them with $500 million and subjecting the State to significant penalties if this marriage turns sour?
And how does this square with the Palin administrations continued bashing of the gas line proposal put together by former Governor Murkowski because his plan didn't guarantee a pipeline?
According to Palmer's testimony, AGIA simply requires them to go up to FERC certification and no further. But that's certainly not what AGIA reads. As we have reported, AGIA requires that a project be sanctioned just fifteen months after FERC issues a certificate.
Earlier Palmer testified that concerns over Congressional financial backing, their request that the State negotiate fiscal terms and their $8.9 billion withdrawn partners liability were baseless.
Last week the Legislative Budget & Audit Committee released a legal opinion that said there were clear contingencies in Transcanada's AGIA application.
A Jan. 23 opinion prepared by Washington, D.C.-based law firm Saul Ewing argued 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.
Palmer's testimony today explains why when the administration was recently asked about the legislature's legal opinion, they brushed it off by saying the legal firm didn't understand AGIA.
Now we all do; AGIA doesn't require Transcanada to build the pipeline.
But this raises even more questions.
Last week the Senate Resources Committee heard from BG Group, a British gas company who testified that one of the reasons they didn't bid on AGIA was that it prohibited them to seek final permission from their Board of Directors before proceeding with construction.
So how can Transcanada say it is not bound by that same AGIA provision?
The admission by Transcanada reinforces the comments made by Representative Mike Doogan during the AGIA debate last spring.
In an April 17, 2007 opinion column in the Anchorage Daily News, Rep. Doogan wrote: "I can't say this strongly enough: AGIA does not lead directly to a gas pipeline. Rather it is a process to get us closer to a pipeline, and to put pressure on the producers to commit the gas they control".
So now we have both legislators and the sole AGIA applicant admitting that after spending the last year grooming a process and spending tens of millions, AGIA does not lead directly to a pipeline.
This also reinforces why Conoco has said repeatedly that they don't need the $500 million State inducement.
On the other hand, Transcanada needs the State's $500 million because it's the only way they can justify even showing up to the AGIA dance.
"The development of the gas line, to move through the AGIA process and to move through the licensing process, is a journey," said state Revenue Commissioner Patrick Galvin. "We don't know what bumps we're going to come across. But we want to have a partner who's willing to work with us as we encounter those."
According to the way Transcanada has structured their cost outlay in their AGIA application, the State of Alaska will pick up 85% of the cost for a journey to nowhere.
Again, does any of this make sense knowing the goal is to build a natural gas pipeline?
Other highlights from Transcanada's testimony
After saying for years that the pipeline could not be built without the support and agreement of the producers, Transcanada was asked whether the State needed to negotiate fiscal terms with the producers. Palmer answered: "I'm not really in a position to comment on your upstream fiscal terms for natural gas".
Transcanada said they anticipated a lot of competition under AGIA and they structured it accordingly. We submitted an application that "at least we judged to be complete", Palmer said.
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