Both Knowles, a Democrat, and Palin, a Republican, propose legislation that would set out incentives for a gas project that would meet certain requirements, according to press releases the candidates have issued and subsequent interviews with advisors to the two campaigns.
Both candidates contrast their plans with Gov. Frank Murkowski’s approach of negotiating a fiscal contract with one development group, the North Slope producers, and not with other groups who would like to build a pipeline, such as TransCanada Corp. or the Alaska Gasline Port Authority, a group of Alaska municipalities.
In contrast, Andrew Halcro, the independent candidate, feels the Murkowski plan is a good starting point as it is, and that any changes should be built on the foundation that has been constructed over the last two years.
For Knowles, his requirements would include the earliest possible startup, mandatory pipeline expansion when it is economic, and requirements that a project be financed in ways that keep the tariff low, according to Knowles' Oct. 9 press release on his plan, which he calls, "The Way Forward."
Palin says she also wants those things, as well as gas for Alaska communities and jobs for Alaskans, according to her Oct. 4 press release. Both candidates want more definitive work commitments, and both offer "streamlined" state permitting and different forms of state financial assistance to the project.
Palin’s “Law of General Application” sounds a lot like Knowles’ “The Way Forward.” In her gas pipeline plan, described on the campaign Web site, Palin says, “The general application bill will set forth several key requirements for a natural gas line project, such as access to gas for Alaskan communities, jobs for Alaskans, pre-construction benchmarks, pipeline expansion provisions that ensure further exploration for natural gas, a reasonable tariff structure and legislative approval. The law would contain an option for fiscal agreements with the state.”
In terms of financial assistance for projects meeting his requirements, Knowles said he would offer a deferral of property taxes and state financial assistance during the pre-construction activities necessary to get to an open season, the point where a pipeline developer signs guaranteed take-or-pay contracts with gas shippers, who could be either owners or purchasers of gas.
Palin says her “Law of General Application” would similarly set forth requirements for a gas pipeline project. If an applicant met those goals, the legislation would provide "compelling incentives for qualified applicants to guarantee quick commencement of the project," she said in her press release.
Knowles has released more details of his plan than has Palin. Knowles would require that no more than 30 percent equity be involved in financing and that “rolled-in” tariffs rather than "incremental" tariffs be used in expansions, which means that all the pipeline owners would share the cost of an expansion — rolled in — rather than the entity proposing the expansion — incremental.
His commitment to help a pipeline developer pay for pre-open season costs could obligate the state to pay for about $250 million in pre-open season costs, sources knowledgeable about the gas project say.
“The state’s underwriting of preconstruction activities can make a critical difference in the ability to reach an open season,” Knowles said in his press release. “The period leading up to an open season — when commitments are made to ship the gas — is one of the riskiest, from the developers' perspective. Getting to an open season is a key step in moving construction forward.”
However, because Knowles has released more details of his plan, there is more to criticize. Some who are familiar with the gas proposals say Knowles' plan really wouldn’t be that much of a benefit, except possibly to project proponents who don't have substantial financial resources.
Speaking on background, these sources say that to get a project through an open season to the critical stages of Federal Energy and Regulatory Commission licensing and the project sanctions, or approvals, by the owners, potential developers would have to spend about $1 billion.
If costs to get though an open season amount to $250 million, and the state subsidizes this through grants, another $750 million will still have to be spent to do final engineering and environmental work needed to submit applications for permits to state and federal agencies and to the FERC.
This is really the high-risk point in the project timetable, and not the pre-open season activities, the sources say, because the developers will have spent several hundreds of millions of dollars more without knowing FERC will issue a license or the owners will approve construction.
Others, however, say Knowles’ plan would be a benefit, since once long-term gas shipment contracts are signed in an open season, the developer would be able to use these signed contracts, under which the gas owners are financially liable, as collateral in raising funds to complete the permitting and licensing of the project.
Palin isn’t as specific on ideas for financial assistance. Here’s what she says:
“The bill (her proposed law of general application) will set forth compelling incentives to qualified applicants, just as the federal government has already done. Incentives guarantee quick commencement of the gas line project, and could include accelerated state permitting, commitments for infrastructure support (public roads, airports, rail, bridges, etc.), and economic impact assistance for local communities. Once we have established this open and competitive environment, all qualified applicants and proposals will have the right to compete fairly, with no organization being given preference over any other.”
Advisers to Palin on the gas issue say that what she really wants is to be able to compare the benefits of competing proposals for transporting the gas, and to be able to present the comparisons to the public.
This is what wasn’t done by Murkowski, one of Palin’s advisers on gas said. Murkowski never subjected the port authority’s plan to a formal public analysis, and the negotiations with TransCanada under the Stranded Gas Act were terminated before any agreement was reached, the advisor said.
The Stranded Gas Act itself does not preclude more than one agreement being reached, and the critical decision by Murkowski was to focus on one — the producers’ proposal, Palin’s adviser said.
Both Knowles and Palin are open to multiple projects that meet the state’s incentives qualifications moving forward. Both also say, however, that one project could still be endorsed, ultimately, by the state.
What Knowles and Palin both seem to favor is a level playing field for competitors to meet the state’s requirements, so that the final decision as to which project proceeds would be made by natural gas customers and the financiers who would lend money for construction.
Palin seems to suggest this approach in her Web site statement. “I am a firm believer in free market capitalism. A free market system allows all parties to compete, which ensures the best and most competitive project emerges, and ensures a fair, democratic process.”
Tim Bradner is a reporter for the Alaska Journal of Commerce. He can be reached at tim.bradner@alaskajournal.com.
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