October session on TransCanada buyout coming

It appears a fall special session is back on after Gov. Bill Walker met with a small group of legislators Sept. 21 to discuss issues key to the Alaska LNG Project.

House Speaker Mike Chenault, R-Nikiski, said in an interview that the governor wants a 30-day special session to begin on or about Oct. 20. The docket would probably be limited to Walker’s proposal to buy out TransCanada Corp. from the project and forward funding the state’s role, according to Chenault.

Chenault, Republican Sens. Kevin Meyer and Cathy Giessel and Republican Reps. Craig Johnson and Mike Hawker attended the meeting with the governor.

Walker confirmed the likely special session agenda items in an interview and said contracts with the other players in the Alaska LNG Project would not be up for approval by the Legislature.

By notifying the Legislature Sept. 21 of an upcoming special session, Walker would meet the statutory requirement for 30 days notice for a special session call and still have it begin Oct. 20. Chenault said he considered the Sept. 21 meeting as sufficient notice to start the session as early as Oct. 20.

Alaska Gasline Development Corp. CEO Dan Fauske said Sept. 9 at a joint Resources committee hearing in Palmer that Walker was unlikely to call a special session unless significant progress was made quickly in the gasline negotiations.

The state is negotiating with North Slope producers BP, ConocoPhillips and ExxonMobil, who are partners in the $45 billion to $65 billion liquefied natural gas export project, the lynchpin of which is an 800-mile pipeline from the Slope to a mega LNG processing facility in Nikiski.

Chenault said that he doesn’t believe the financial agreements are ready to be reviewed yet.

“Naturally, we’d like to do it all at one time,” he said.

However, he added that it’s positive to see the state making progress on such a big project. Calling a narrow-focused special session will indicate where the state wants to head, he said.

Giessel said in an interview with the Alaska Journal of Commerce that Walker asked for the legislators’ input, and that they asked him to keep the call limited. The governor agreed and indicated that the natural gas pipeline would be the main topic.

Currently, Alaska has a contract with TransCanada, a pipeline company, for it to own and operate the state’s 25 percent share of the large North Slope gas treatment plant and the pipeline. The state would own 25 percent of the LNG plant planned for Nikiski.

The remaining 75 percent ownership of the project would go to the producers, roughly equivalent to the gas ownership each has in the project. Those partnerships were agreed to in Senate Bill 138 passed in 2014, which outlined the structure of the project. The state owns 12.5 percent of the gas as its royalty share, and could take an additional 13 percent “in-kind” rather than as a fiscal tax although a final decision on that has not been made. 

Walker has said assuming a larger ownership role could be in the long-term best interest of the state.

In June, the governor proposed the state taking over TransCanada’s role among other options, including exercising an option to purchase 40 percent share of the company’s interest in the project or keeping the consortium structure as-is.

Giessel said a potential buyout of TransCanada could cost the state $108 million at a time when Alaska North Slope crude is selling for less than $50 per barrel and it is facing multi-billion dollar deficits.

“Our (Senate) Finance Committee is interested in where that money would be coming from. That is a big deal,” she said.

Giessel feels the Legislature could be convinced to get TransCanada out of AK LNG, a position Walker is rather committed to, she said. She cited the pipeline expertise of the other North Slope producers as giving her confidence the remaining project partners would have the capacity to build it.

A TransCanada representative recently said at a joint House and Senate Resources Committee meeting that the company is ready to help the state in such a transition.

Beyond the buyout price, Giessel said the state would need to make “cash calls” to pay for what would have been TransCanada’s equity share in the pipeline and the treatment plant.

“We were going to have TransCanada carry that for us, like a young family depending on parents

“With TransCanada out, how do we carry this on our own?” she asked

Giessel said legislators have been told the administration has modeled the costs for the state to finance its share of the project if it buys out TransCanada.

“We would like to see that sooner rather than later,” she said. “This was discussion we had with the governor.”

The state taking TransCanada’s share — a commitment that will be in the billions of dollars — was discussed when SB 138 was being deliberated, according to Giessel. 

She noted that was also when the state was in a much better fiscal situation and oil was more than $100 per barrel.

Even if the TransCanada buyout is resolved, another gasline special session could be in the works for next summer.

The Legislature will almost certainly be consumed in the regular 90-day session with state revenue options to fill in the fiscal gap, more budget cuts and the hot-button issue of funding the state’s share of Medicaid expansion.

Chenault said taking the issues up incrementally “shows good faith from the state” paramount to a project so important to the future. The producers have shown good faith in the project by continuing to spend millions on pre-front end engineering and design, or pre-FEED, work during a time of low oil prices, he said.

Still to be resolved are financial agreements among the state and producers, which need to be hashed out before the Legislature, and then voters, can take up a constitutional amendment needed to move the Alaska LNG Project forward.

The amendment must be approved by a two-thirds legislative vote in a special session or the 2016 regular session if it is to be placed before voters in the 2016 November general election, as the Constitution requires.

For the state to agree to long-term agreements, the amendment to the Constitution, which currently does not allow one Legislature to bind subsequent bodies to contracts or policy, is needed.

Missing the November 2016 election would mean waiting until 2018 and potentially push the project back two years.