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2002 Reference

Northern Gas Pipelines, (Alaska Gas Pipeline, Denali - The Alaska Gas Pipeline, Mackenzie Valley Gas Pipeline, Alaska Highway Gas Pipeline, Northern Route Gas Pipeline, Arctic Gas, LNG, GTL) is your public service, objective, unbiased 1-stop-shop for Arctic gas pipeline projects and people, informal and rich with new information, updated 30 times weekly and best Northern Oil & Gas Industry Links on the Internet.  Find AAGPC, AAGSC, ANGTL, ANNGTC,  ANGDA, ANS, APG, APWG, ANGTA, ANGTS, AGPPT, ANWR, ARC, CARC, CAGPL, CAGSL, FPC, FERC, GTL, IAEE, LNG, NEB, NPA, TAGS, TAPS, NARUC, IOGCC, CONSUMER ENERGY ALLIANCE, AOGA,AOGCC, RCA and more...

2009 LINKS: FERC Reports to Congress, 1, 2, 3, 4, 5, 6, 7....; USGS Arctic Gas Estimates; MMS hearings: RDC, Our NGP, AJOC, DH, ADN, KTUU; Enstar Bullet Line: Map and News Links; ANGDA; Alaska Energy Forum; Prosperity Alaska

2008 LINKS: Shell Alaska OCS Study; Mackenzie Gas Project EIS; Join the Alaska Gas Pipeline Blog Discussion; Governor Sarah Palin's AGIA Links; 2007 ACES tax bill links; Department of Revenue 2007 ACES tax documents;  2007 ACES tax Presentations; 2007 ACES tax news; Alaska Gas Pipeline Training and Jobs; Gas Pipeline and Economic Development; Andrew Halcro; Bjørn Lomborg; FERC's Natural Gas Website Links

WASHINGTON: Alaska Natural Gas Pipeline Act; History of H.R. 4; DOE Energy Bill Position, 6-02; Daschle-Bingaman Energy Bill (Alaska, Sec. 1236 & tax credit, Sec. 2503 & H.R. 4 Conferees), Tax Credit; See amendments, "Energy Policy Act of 2002";  "Alaska Natural Gas Pipeline Act of 2001 (Draft)" & Background Paper, 8-9-01;Alaska Legislature Joint Committee position; Governor's position; Governor's 10-Point Plan; Anadarko Analysis; U.S. Senate Energy Committee Testimony, 10-2-01 - text version;  U.S. Senate Energy Committee Testimony, 9-14-00; Report on the Alaska Natural Gas Transportation Act of 1971, prepared by staff of the Federal Energy Regulatory Commission, 1-18-01

ALASKA: 1-23-03, Governor Frank Murkowski's State of the State Speech; 2002 DRAFT Recommendations to 2003 Legislature; '02 Alaska Legislation; Alaska Highway Natural Gas Pipeline Policy Council; Joint Legislative Gas Pipeline Committee; 9-01 Alaska Models: Canadian Routes, LNG, GTL; HR 4 Story; Cook Inlet Supply-Demand Report: AEDC; Commonwealth North Investigation & Our Article; Report: Backbone; Legislature Contacts; State Gas Pipeline Financing Study; 5-02 Alaska Producer Update; Kenai: "Oil & Gas Industry Issues and Activities Report, 11-02"; Alaska Oil & Gas Tax Structure; 2-27-02 Royalty Sale Background; Alaska Gas Pipeline Office opens, 7-01, and closes, 5-02; Betty Galbraith's 1997-1998 Chronology Our copy.

CANADA: 1-10-03, "Arctic Gas Pipeline Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada Inc.-The Van Horne Institute;Hill Times Reports, 8-30-02; 9-30-02, Cons. Info. Requirements; CBC Archives, Berger Commission; GNWT Economic Impact Study, 5-13-02; GNWT-Purvin & Gertz Study, 5-8-02; Alberta-Alaska MOU 6-02; Draft Pan- Northern Protocol for Oil and Gas Development; Yukon Government Economic Effects: 4-02 & PPT; Gas Pipeline Cooperation Plan Draft & Mackenzie Valley Environmental Impact Review Board Mackenzie Valley Pipeline MOU Draft, 6-01; FirstEnergy Analysis: 10-19-01; Integrated Delta Studies; National Post on Mackenzie Pipeline, 1-02;Northern Pipeline Act;  Haida Nation v. British Columbia; Indian Claims Commission; Skeena Cellulose decision -- aboriginal consultations required, 12-02; Misc. Pipeline Studies '02

COMPANIES: Alaska Gas Producers Pipeline Team Newsletter, 7-27-01; APG Newsletter: 5-02, 7-02 & 9-02; ArctiGas NEB PIP Filing Background; NRGPC Newsletter: Fall-02;  4-02 ArctiGas Reduces Field Work; BP's Natural Gas Page; Enbridge Perspective; Foothills Perspective; Williams Perspective; YPC Perspective, 7-02

 MEDIA REFERENCE: Alaska Journal of Commerce; Alaska Inc. Magazine; Anchorage Daily News; Canadian Broadcasting Corporation; Fairbanks Daily News Miner, Juneau Empire; Northern News Services; Oil & Gas Reporter; Petroleum News Alaska; Whitehorse Star, etc.

EXTENDED CONFERENCE NEWS: Alaska Support Industry Alliance, Anchorage Chamber of Commerce Canadian Institute, Insight Information, Inuvik Petroleum Shows, International Association of Energy Economists, Resource Development Council for Alaska, Ziff Energy Group











Northern Gas Pipelines: 2001 Policy Council Reference; Additional 2002 References Here

Mission of the Governor's Alaska Highway Natural Gas Policy Council: "To promote an Alaska Highway Natural Gas Pipeline project to the lower 48 that also enables creation of a natural gas business in Alaska."

Council's Official Web Page

11-30-01: After a year's effort, this is the final report of the Council to the Governor; as expected, it executes the policy direction (above) given Council members early in the year.  See Tim Bradner's Anchorage Daily News Commentary.  Also, see our special RDC report here.

Draft Recommendations of Committees, issued 10-28-01: Alaska Hire/Buy/Build, State Pipeline Ownership and Tax Structure, Federal/International Action, Access for In-State Gas Use and Future Opportunities, Environmental Considerations

1.  Timeline  2.  Council Members  3.  Council Committee Structure  4.  Council Meeting Agendas and Transcripts and Reports: Anchorage 4-5/01, Fairbanks 4-18, Kenai 5-17, Anchorage 5-24, Anchorage 7-11, State Royalty Share Committee Meeting, Barrow 7-19, Juneau 8-2, Anchorage 8-13, Anchorage 9-21, State Ownership/Tax Structure Committee; 10-3, State Ownership/Tax Committee Meeting; 10-17: The Access for In-State Gas Committee; 10-31, Final Council Meeting

Timeline1.  Council Timeline (All dates/locations subject to change):

March 1, full council meeting kick-off in Anchorage

March 23, full council meeting/workshop in Anchorage

April 5, full council meeting/workshop in Anchorage

April 18, Fairbanks public hearing

May 17, Kenai public hearing

May 24, full council meeting/public hearing in Anchorage

June 14, Tok/Delta public hearing

July 19, Barrow full council meeting/public hearing (videoconference from Anchorage)

August 2, Southeast public hearing

August 23, Valdez public hearing

September 17, (Postponed to 9/25) full council meeting in Anchorage

October 8, final full council meeting in Anchorage

Other important dates:  October 1, written reports from subcommittees; October 30 first draft of final report; October 31, full council meeting to consider reports; November 30, final report submitted to Governor Knowles. 

Members2.  Council Members:  Co-chair Frank Brown, retired ARCO Alaska Senior Vice President-Anchorage; Co-chair Jim Sampson, Executive Director of the AFL-CIO in Alaska-former mayor of the Fairbanks North Star Borough; Former state Senator Al Adams-Kotzebue; Jake Adams, President, Arctic Slope Regional Corporation-Barrow; North Slope Borough Mayor George AhmaogakFairbanks North Star Borough Mayor Rhonda Boyles; Former state Attorney General Charlie Cole-Fairbanks; Bill Corbus, president of Alaska Electric Light and Power Company-Juneau; Oil and gas consultant Brian Davies, former vice president for BP/Alaska-Anchorage; Ron Duncan, President of GCI-Anchorage; Jeff Feldman, Attorney-Anchorage; Lee Gorsuch, Chancellor, University of Alaska-Anchorage; Jerry Hood, Chief Executive Officer, Alaska Teamsters Union local 959-Anchorage; Jim Jansen, President of Lynden transportation company-Anchorage; Carl Marrs, president and CEO of Cook Inlet Region, Inc.-Anchorage; Former state representative, Kenai Peninsula Borough Mayor Mike Navarre; Mike O'Connor, President, Peak Oil Field Services Company-Anchorage; Bob Penney, member of the North Pacific Fisheries Management Council-Anchorage; Ed Rasmuson, Chairman, National Bank of Alaska; Former Anchorage Mayor Jack Roderick; Former Permanent Fund Executive Director Dave Rose, President, Alaska Permanent Capital Management-Anchorage; Jon Rubini, real estate investments-Anchorage; Former state Attorney General Grace Schaible-Fairbanks; Former ARCO Alaska President Ken Thompson, CEO of Pacific Rim Leadership Development-Anchorage; Peg Tileston, Chair of Alaska Common Ground-Anchorage; Anchorage Mayor George Wuerch;  Former state Natural Resources Commissioner Esther Wunnicke-Anchorage.  Ex-Officio: Honorable Rick Halford, Senate President; Honorable Brian Porter, Speaker of the House  

3.  Committee Structure of the Council: 

Alaska Hire/Buy/Build – Mike Navarre, chair: Jerry Hood, Rhonda Boyles, Jake Adams, Peg Tileston

Use of the Alaska labor pool by contractors and subcontractors

Use of Alaska businesses

Training and readiness of Alaskans for jobs on a gas project

Socio-economic impacts

State Pipeline Ownership and Tax Structure – Bill Corbus, chair: Dave Rose, Ron Duncan, Grace Schaible, Mike Navarre, Ed Rasmuson, Mike O'Connor, Ken Thompson

State promotion and facilitation of project financing – state ownership

Evaluation of state tax structure

Federal/International Action – Charlie Cole, chair: Esther Wunnicke, Bob Penney, Jon Rubini, Jeff Feldman, George Wuerch

Federal permitting/access

Federal agency lead

Canadian permitting/access

Other contractual considerations

Domestic markets – competing sources/sharing of the market

Canadian national and territorial relations

Access for In-State Gas Use and Future Opportunities– Ken Thompson, chair: Carl Marrs (vice chair), Rhonda Boyles, Al Adams, Brian Davies, Jim Jansen, Jerry Hood, Bob Penney, Jack Roderick, Lee Gorsuch, Jeff Feldman, George Ahmaogak, Bill Corbus

Supply/demand for in-state natural gas

Best practices valuation/net-back pricing methodology to facilitate in-state gas use

Ensuring fair and transparent access rules to natural gas for Alaskan customers

Benefits of natural gas development to rural Alaska and to communities along the pipeline

Future options over 50 years for projects utilizing:

      gas-to-liquids (GTL), liquefied natural gas (LNG), natural gas liquids (NGL), petrochemical feedstock, fertilizer, etc. for in-state use or for export to markets in Asia or the West Coast

·         Promotion or attraction of investment for in-state distribution and value-added processing

Assess costs and benefits of the State taking delivery of its royalty share vs. taking royalty payments; review other states’ policies for best practices

Environmental Considerations– Peg Tileston, chair: Brian Davies, Esther Wunnicke, Lee Gorsuch, Grace Schaible

·         Environmental impacts and necessary protection measures

·         Doing it right

4.  Council Meeting Agendas (Obtain Meeting Transcripts)

       2-7-02:  Please move to this extended page for a report on Governor Tony Knowle's special work session with the Council, convened for the purpose of announcing a plan for creatively supporting a pipeline via the Alaska Railroad's unique tax-exempt bonding capability.


FINAL MEETING: Governor's Alaska Highway Natural Gas Pipeline Policy Council.

This was the last scheduled meeting of Governor Tony Knowles’ (Photo, 10-31-01) Alaska Highway Gas Pipeline Policy Council, first initiated last January 26 as Executive Order No. 188.  That order stated the purpose of the Council: "to engage Alaskans representing a broad spectrum of Alaska interests, experience, and geography to advise the Governor and the Alaska Highway Gas Pipeline Cabinet in determining how the state can best promote the Alaska Highway North slope natural gas pipeline project and maximize benefits for Alaskans." 

At noon, Knowles addressed the Council and said, “The phrases that come to mind are ‘the best and the brightest…and hard working',” in praising Member achievements.  “You’ve held a number of comprehensive workshops producing leading edge information,” he said, “…providing thoughtful, thorough examination of the universe of ideas surrounding gas pipeline issues.”  Knowles reserved special praise for Cochairmen Frank Brown-r and Jim Sampson-l (Photo, 10-31-01) as being “…articulate spokesmen and effective leaders”.  He said the Council had brought a sense of unity to the issue as had the parallel work of Senator John Torgerson’s Joint Legislative Committee.  “Without unity and forcefulness,” he said, “we wouldn’t have a chance.  … Armed with the unity you helped forge…and with your report, we have all the tools needed to go forward…,” he said. 

Cochairman Sampson opened the meeting earlier by thanking Ken Freeman, the Governor’s special assistant staffing Council activity, along with office associates, Debra Ceffalio and Erika McConnell.  He complimented the many witnesses who had participated along with mayors and citizens throughout Alaska who had welcomed the Council to its many regional meeting sites.  He offered special appreciation to representatives of the Alaska Gas Producers Pipeline Team, Curtis Thayer (Photo, left-5-01) and Michael Hurley (Photo, right-9-01).   

Cochairman Brown moderated subcommittee reports, first introducing Council Member Charlie Cole, (Photo, 9-01) former state Attorney General.  Cole’s Federal/International Action Committee submitted a draft report for Council consideration.  It embraced ten policy goals, “…developed to guide…” drafting of Federal legislation, earlier approved by the Council.  The report emphasized advantages of a ‘southern route’ for the pipeline.   “We heard overwhelming support for this principle..." in Barrow, Fairbanks and the other meeting locations, he said (Photo-Former Senator and Member Al Adams' huge district included the North Slope Borough).  The report also supports modernization of the Alaska Natural Gas Transportation Act of 1976 (ANGTA).  Member Jack Roderick asked for Cole’s opinion of what Alaska should do if an energy bill did not pass through Congress this year which contained provisions for reasonable in-state pricing and access to the gas.  Cole said that, “Plan ‘B’ would be to support the Alaska Highway route come hell or high water,” a phrase he later repeated to the Governor, receiving a similar animated response.  The Council approved the report, draft available to you, here

Cochairman Brown invited Member Brian Davies to deliver the Environmental Considerations Committee report in place of the absent Chair, Peg Tileston.  “We endorse the Alaska Highway route as the environmentally preferred alternative,” he said.  He then reviewed goals and recommendations of the committee.  Member George Wuerch, Mayor of Anchorage (Photo, center, with Members Mike O'Connor and Rhonda Boyles), suggested a change in wording to make it clear that a “review of the full range of alternatives” associated with an EIS applied to Highway route alternatives and not other route alternatives.  The Council agreed to the change.  Boyles, Mayor of Fairbanks, questioned whether a full or supplemental EIS would significantly delay the project.  Davies said such review would be conducted in any case and that an EIS could be accomplished without significant delay.  The Council approved the amended report, the earlier draft of which is available to you here

Member Bill Corbus presented the shortest and perhaps most newsworthy report of the day, which stimulated the most discussion.  “The State Pipeline Ownership and Tax Structure Committee believes,” Corbus said, “the pipeline is economically feasible for certain investors and should be undertaken with private financing.”  He recounted the many meetings of the Committee and long line of witnesses.  He praised Revenue Commissioner Wil Condon, State Oil and Gas Division Deputy Bonnie Robson and state oil and gas economist Roger Marks for their important contributions.  He briefed the Council on Committee investigation of how pipelines are financed and taxed and how a state might properly own all or a portion of a pipeline.  He said the Committee carefully reviewed both the benefits of state ownership and the obligations the state might incur as an owner or should it nominate capacity in the pipeline.  The committee, he said, invited critiques of current state tax policy and invited producer recommendations.  “I could not stress enough,” he said, “that at a future point in time the state could reopen the discussion of state ownership.”  Davies suggested the Council develop a preamble to the report which would include a discussion of the implications of producer and/or pipeline company ownership of the line and as a last resort, State ownership. The Council agreed to develop an executive summary which discussed, among other points, the advantages and disadvantages of the various ownership options.   Member Ken Thompson emphasized the importance of the report’s statement concerning stipulations the state could impose in rights-of-way leases across state lands, a theme that reoccurred in other reports and comments.  He also stated that ownership might be significantly different than the common notion of producer ownership, as in the Trans-Alaska Pipeline.  “I know of no major gas pipeline in which there is producer ownership.”  He said that gas pipeline transportation companies own major gas pipelines in the Lower 48.  Member Dave Rose, former Alaska Permanent Fund Executive said members were surprised at the lack of tax exempt financing available for such a large project, which “…played a major role as to whether the state should be involved.”  Tax exempt financing, he said, would more likely occur with local in-state projects associated with the pipeline rather than with the pipeline itself.  Member and state representative Georgianna Lincoln (Photo, during break with Commissioner Pat Pourchot), complimented the Committee on emphasizing the role Alaska corporations could play in the private financing of the project.  Member and state representative Ethan Berkowitz observed that during the October 2 U.S. Senate Energy and Natural Resources Committee hearing, there was criticism that while Alaska is asking the Federal government for project incentives, Alaska has offered no specific incentives.  Corbus, then referring to the Committee’s recommendation that tax policy changes should not be defined until project owners become known, said that the matter was one of timing.  Thompson, former Arco Alaska, Inc. President, recalled previous producer concern with rapidly changing tax policy after the Prudhoe Bay discovery.  Member Mike Navarre, former legislator and former Kenai Mayor (Photo below, left, with members Davies-middle, and Berkowitz), stated that such action was necessary because Alaska was “in its infancy” and that it took time to develop appropriate tax policy.  Member Jack Roderick, backing up Navarre, said, “Remember that when Prudhoe Bay was discovered the severance tax rate was 1%.”  Davies observed that Federal incentives had more impact than state incentives.  Sampson said he was concerned that whenever the term “stable fiscal policy” arises, he thinks of what the state must give up.  That portion of the discussion ended.  The Council approved the draft with an amendment to the last paragraph, eliminating reference to House Bill 393 but retaining balance of the content.  The original, unchanged draft is available for your review, here.  (Note: after the meeting Cochairman Brown emphasized that it was good the Council felt it was unnecessary for the State to seek an ownership role at this time.  He said that while the state could reopen the issue, the Council's investigations demonstrate that there is sufficient private sector interest and ability to finance the project.  He praised Corbus for the committee's work product.)

Alaska Hire/Buy/Build Committee Chairman Mike Navarre focused on recommendations to support local content in a project, to support vocational education and asked that the state Department of Community and Economic Development “…undertake a study to determine the social-economic impacts of the gas pipeline along the Alaska Highway route."  He urged the Governor, for the sensitive matters of “Alaska hire” to incorporate the concept employed in the BP/ARCO merger ‘charter’ which outlined indirect but effective ways of stimulating high Alaska content.  Wuerch urged that the socio-economic study being recommended include impact on local governments and the Council agreed to the change, yet to be reflected in this original draft provided for your review, here.  (Note: after the meeting, Department of Community and Economic Development Commissioner Debbie Sedwick (Photo-below, reviewing report as Chairman Thompson presents recommendations) emphasized the importance of anticipating impact of the gas pipeline on local communities.  "We should learn from the lessons of the past," she said, saying one could "mitigate impacts while maximizing opportunities."  She said her department has already undertaken communication with Mayor Boyles' Fairbanks community and with others along the route.  "Because the project will not happen tomorrow," she said, "we have time to know the questions to ask and develop the answers."  She said that while theme of the Knowles administration is 'open and ready for business', "...we need to do so in an environmentally sensitive way and in ways which support Alaska's families and businesses.")

Ken Thompson chaired the “Access for In-State Gas Use and Future Opportunities Committee”.  He opened by stating that when a gas pipeline comes south, the state can become self-sufficient with an environmentally preferable fuel.  He emphasized that reserves along the southern corridor might not be either discovered or developed without the access a southern route would provide.  Thompson then moved through a detailed report containing eight goals and numerous supporting conclusions and recommendations.  “The State should take a long-tern, broad and strategic view of its entire natural gas resources,” the report said.  The Council approved the Committee’s recommendation, included for your review, here.  (Note: after the meeting, Cochairman Sampson complimented Thompson and his committee for their effort, adding that the report helps Alaskans correct a misimpression that producers must own a gas pipeline like they own the oil pipeline.  "This Council has demonstrated that gas pipeline companies have a significant interest in an Alaska gas pipeline.")

Natural Resources Commissioner Pat Pourchot, and Oil & Gas Division Deputy Bonnie Robson appeared at the meeting.  Pourchot told Northern Gas Pipelines that some of the companies expressing interest in Alaska North Slope state royalty gas are: Netricity, Williams, Anadarko Petroleum Co., and Alberta Energy Corp.   Robson repeated to the Council a briefing given earlier to the Committee, emphasizing that an expedited royalty gas findings & RFP process is now underway and could accommodate an 'open season' which the producers have said could occur in early 2002.  (Photo: Lincoln, Pourchot, Rose and Corbus).

(While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh   ...Draft Revision: 11-1-01)

10-17: REPORT:  The Access for In-State Gas Committee of the Alaska Highway Natural Gas Pipeline Policy Council met yesterday in Anchorage.   Committee Chairman Ken Thompson (Photo) opened the meeting saying that the "...objective is to review key goals of the committee and draft recommendations.  Our challenge on this committee," he said, "is to look at issues from an Alaskan viewpoint."  Speaking about the 'in-state' focus of the committee, he said it would be foolish "...for  any state or country to not use its own resources."  Member Carl Marrs reminded the committee of the importance of focusing on the development of a gas pipeline.  Chairman Thompson cautioned that a northern route would only benefit the North Slope.  The committee reviewed 16 pages of recommendations and conclusions proposed by the Chairman, made changes and agreed to meet again on 10-26 to finalize a package for review of the full council.  

10-5:  Governor’s Alaska Highway Natural Gas Pipeline Policy Council.  The conclusion of this Council’s mission approaches with a final report due to Governor Tony Knowles on November 30.  In preparation for that deadline, several meetings are occurring:  The State Ownership/Tax Committee met Wednesday (10-3-01) in Anchorage (Report below); The Access for In-State Gas Use and Future Opportunities committee meets at 9:30 a.m., Suite 1730, Atwood Building in Anchorage on October 16.  The next full Council meeting will meet October 31, time and location to be announced.    

Northern Gas Pipelines Report: The State Ownership/Tax Committee Meeting, 10-03-01 

At 9:20 a.m. corbus8-13-01crop.pngChairman Bill Corbus (Photo, left) called the meeting to order, introducing Rigdon Boykin of O’Melveny & Myers by teleconference from New York and Department of Revenue representatives Larry Persily (Right photo, left) and Roger Marks (Right photo, right, with journalist Tim Bradner, center).  Their appearance was followed by those of Bonnie Robson from the Division of Oil and Gas, Representative Eric Croft, with public testimony provided by Harold Heinze and Jerry McCutcheon.  Chairman Corbus asked Boykin why his client, the Alaska Gasline Port Authority, required no equity when AIDEA representatives have told the committee that state revenue bonds would require equity in the form of cash or a pledge of royalty income or severance taxes.  Boykin said that if the state issued the bonds investors would require equity but that almost all independent ‘authorities’ finance 100% of the debt with security for the bonds being the revenues pledged.  He gave the example of $9 billion in bonds issued by the Long Island Power Authority.   He said bondholders’ principal concern is whether the debt service coverage ratio is sufficient.  In the Alaska authority’s case, he said, “…we have an average of a 3.0 debt service coverage.  That is far in excess of what would normally be required.”  His advisors have said the project needs only a 1.7 coverage ratio to be successful in the market.  Member Ron Duncan (Photo below, right, with Roderick) was interested in assumptions (terms and conditions) made for obtaining the project's gas supply.  Boykin said the project assumed payment to producers of $.75/MCF and that they would have to deliver at that price or pay the cost of damage for failure to deliver.  Duncan inquired about volume assumptions.  Boykin said the project would require gross volumes of 8.7 BCF/D of which 2 BCF/D would be returned to the producers; the project would pay only for the gas actually taken.  Duncan asked if Boykin thought the producers would sell the gas for $.75.  Boykin said, “I don’t think the producers want a pipeline built right now, period.”  He said that until an offer is made, producers can conclude a market doesn’t exist and no pipeline should be built.  “At the point someone makes an offer the refusal to sell could be examined…because all of a sudden a market has been established.”  He said that when actual offers to purchase gas are made the pressure to sell will increase.  Duncan probed further on volume issues, first determining that present proven ANS gas reserves are in the 35 TCF range.  “You need 9 MCF/D for 30 years?” he asked Boykin, who said he did.  Member Frank Brown concluded that this daily volume of gas would require reserves on the order of 90 TCF.  Duncan observed that this volume condition for the Authority project represented 3 times the proven reserves of the North Slope.  Corbus asked Boykin if he saw any reason the state couldn’t form an ‘authority’.  Boykin said he had two concerns about that.  Investors would want a slice of the permanent fund as security, and redoing all the work his authority team has completed could cause loss of time and the window of opportunity.  Member Jack Roderick (Photo above, left) asked about the Authority’s assertion that it did not fall under requirements of the Natural Gas Act.  Boykin said the Act specifically excluded entities such as authorities but this one would still be subject to export permits.  In answer to another of Roderick’s questions, Boykin said the tax-exempt nature of the project could provide project savings of about $900 million/year.  Persily observed that authority-type financing had not experienced a project so massive as a pipeline from Alaska to the lower 48.  He asked Boykin about the price the project needed to deliver gas to the Lower 48.  Boykin said the number was around $3.10, which produces the 1.7 debt service coverage ratio (LNG to Asia improves the ratio).  Persily said that at this point in the department’s research, there was skepticism the authority project could be financed.  He pointed to difficulty with long term contracts: unlikely for the Lower 48 market and of diminished importance in Asian markets.  He said the economy and market dynamics have changed dramatically since last year and that the “…window of opportunity is closing as we speak.”  Marks said that Cambridge Energy Associates believes the LNG market is not robust, that long-term contracts for such large volumes were not likely.  He found it unlikely that investors would support a project of which 55 TCF of the assumed throughput was not proven.  “We would be skeptical you could obtain financing for that amount of undiscovered reserves,” he said.  Duncan said the Port Authority should be complimented for developing a creative approach to deal with multiple markets.  He asked Boykin what action the state could take to facilitate his project.  Boykin replied that the “biggest problem” is that the producers don’t want to move forward.   He said the project needed companies like Duke and Enron to “…put 75 cents on the table,” and for the state to support that offer.  The state can take three steps, Boykin said: tell the producers to sell the gas if they have offers in the $.75 range; support an expedited permitting process; and, support a port authority process.  Member Ken Thompson pointed out that the Energy Information Agency is still forecasting long-term prices for natural gas in the $3 range.  He said no major forecasts are made on current prices and that 2008 is in the long-term forecasting target period.  He said the recession, low interest rates and massive layoffs with an attendant manpower surplus creates, “…a major opportunity to build new pipelines.”  He added that the authority concept might be viable for related infrastructure and could be considered for a $2 billion line segment to a hub trading facility in Interior Alaska and Boykin agreed.  Robson (Photo, with Bill Walker-Boykin's colleague) said that if the state had controlling interest in a pipeline owners have a right to implement contract carriage.  “If the state had less than controlling interest,” she said, “it wouldn’t have a right to capacity and access to the line.”   Roderick asked about the state nominating capacity for its 1/8 royalty interest.  Robson said that, “If the state leaves its gas in-value, there is no need to nominate capacity.”   If it takes its gas in kind, she said, it would probably be sold on the North Slope and the shipper would have the responsibility for obtaining pipeline access and capacity.  She added that if the state took gas in-kind for sale at another location, it would assume the responsibility of nominating capacity.  Member Rhonda Boyles asked about the length of open seasons.  Robson said there typically is a 30-45 day period for interested parties to come forward and provide assurance that they will pay for capacity and sign ship or pay agreements.  For smaller volumes to Fairbanks, she said (up to 50 MCF/D), producers could basically “squeeze it in” without requiring nominated capacity.  Answering another question, Robson told Boyles that it would be possible to have multiple open seasons by several pipeline entities.  Boyles then asked if economic models representing the various scenarios were available.  Marks confirmed that models would be provided but that these didn’t apply to a port authority concept.  He added that staff believes there is no Asian market for the gas since demand in those countries is already under contract.  He said that much of the world gas supply available for LNG is at or near tidewater without having to pay the penalty of an 800 or 400 mile pipeline.   Persily responded to Duncan’s question about state ownership of an authority by saying he believed a change in federal law would be needed to achieve the tax exempt status envisioned by authority proponents.  He said the tax exempt portions of the line would be those serving the public.  As examples, he said that if 3% of the gas were used in the state, perhaps 3% of the line could be tax exempt; if the LNG port were available for public use, it could be tax exempt.  Duncan asked about the stability of state tax policy.  Persily said that the legislature could change laws in any given year, a problem, Robson said, which could concern pipeline owners.  Marks told the committee Alaska has a regressive fiscal system.  He said the legislature could share risk by modifying the tax structure so that the state would take less of the pie when revenue was high and more of the pie from a more profitable project.  Representative Croft gave an eloquent argument for state ownership.  Basis of his position is that ownership resolves rather than creates conflicts of interest and litigation.  If the state’s gas interest were in the 25% range (i.e. royalties plus severance tax), the state could own 25% of the gas pipeline.  Then, when a decision favored the pipeline at the expense of wellhead price, the state would benefit in the proper proportion.  In public testimony, Harold Heinze emphasized to the Committee the important role of the state as an owner of the rights of way.  Under Title 38, he said access can be granted with a number of conditions that provide benefits to the citizens and protections to the state.  Jerry McCutcheon, a long-time industry observer, discouraged consideration of any gas pipeline saying that the ‘highest and best use of the gas is what it is doing now,’ referring to its use in repressurizing the reservoir and with tertiary recovery techniques, enhancing oil production. 

By mid-afternoon, Chairman Corbus told his committee it, “…was time to make a couple of decisions.”  He reviewed the charge of the committee to make recommendations to the governor regarding state ownership of a gas pipeline and tax policies related to the project.  Following are the draft recommendations approved by the committee (PLEASE NOTE THAT SUPPORTING ARGUMENTS WILL BE INCLUDED WITH THE THREE RECOMMENDATIONS WHEN THEY BECOME AVAILABLE):  1. The Committee believes the pipeline is economically feasible for certain investors and should be undertaken with private financing. We recommend against direct state investment unless there is clear evidence of economic benefits to Alaska that cannot be achieved through other regulatory or political mechanisms.     2. The Committee encourages exploration of creative financial structures to facilitate all or part of a gas pipeline and/or in-state gas infrastructure, provided such entities finance their activities through private markets.     3. The Committee recognizes that state tax policy is one of several tools that could play a role in influencing pipeline development, but reserves a decision. It is premature to decide how to use this tool until there is more definition of a project and the nature of its ownership. (While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh...Draft Revision: 10-05-01)  

9-25: The Governor’s Alaska Highway Natural Gas Pipeline Policy Council held committee meetings then a full session, producing much different conclusions than the CWN volunteer citizens reached.  In the morning, In-state Gas Use and Future Opportunities chairman Ken Thompson presented Texas’ Deputy Land Director, David Hall (Photo-left) to members.  Hall said that his state authorized in-kind marketing of royalty gas in 1983 and now takes about ½ of its royalty gas ‘in kind’, enabling “…us to provide it to customers at a low price….”  He said the practice of the state marketing a portion of its own royalty gas produces higher value (i.e. since school and other government ‘customers’ don’t have to pay taxes and other fees normally included in commercially provided gas.)  He said the practice also reduces the audits and disagreements that would otherwise be associated with taking all of its royalty ‘in value’ from a large number of gas producers.  Member Brian Davies (Pictured-center, with Esther Wunnicke-left and Mike Navarre-right) established that the lower rates provided to schools and other government customers meant that commercial power companies—which are state taxpayers—end up selling less gas, providing less income to the state.  Member Carl Marrs clarified with Hall that the state through statutory mandates obtains spare capacity pipeline access and makes no payment for gas conditioning.  Thompson inquired about lease terms and Hall provided a “Miscellaneous Pipeline Easement Form”.  Member Rhonda Boyles inquired about the relative ‘autonomy’ of Hall’s division, and Thompson determined that Hall’s office receives disclosure of ‘affiliated transactions’, deals that could add to producer profits down stream or indirectly when sale of initial gas volumes was more modest.  Hall’s presentation concluded with a chart reflecting 2001 oil and gas royalty income of about $240 million of which about half was marketed by his division.  Chairman Thompson invited Bonnie Robson to the table; Robson is Deputy Director of the Alaska State Division of Oil and Gas.  She began by addressing royalty income.  “Last year,” she said, “the state received over $1 billion in royalty payments.”  She then discussed in-kind issues, advantages of which included in-state job creation, in-state investments, new projects producing tax revenue and the possibility of lower cost energy.  She pointed out that under state leases the state could give producers a 3-6 month notice of the state’s intent to switch between the taking of royalty gas “in-kind” and “in-value”.  As to disadvantages of taking royalty “in-kind”, she said that, “In the past, the state has almost consistently gotten less for its oil taken in kind than it could have received in value.”  The administrative cost of selling oil and gas is time consuming and requires experience and expertise, she said.  Member Marrs wondered if the state could contract out the marketing of its oil and gas.  Robson said it was possible, but one would have to pay for such outsourcing and would have to ask if the state would have benefited more by paying for qualified staff.  Davies asked why it appeared that the benefits of taking royalty in kind would do less for Alaska than it does for Texas.  Robson said that Alaska has fewer producers to track.  It also has fewer potential power user customers.  “I have to say,” she said, “that obtaining less from in-kind sales in the past is a sore subject for many of us in the department and we have no intention of allowing that to happen again.”  Cavan Carlton, Director of Williams' Arctic Project briefed the committee on several of the company’s interests.  He said, “Arctic gas is necessary to meet expected North American demand growth,” and that Williams has developed a formal team approach with about ten professionals assigned to the project.  He said that last May, Williams initiated a Petrochemical Feasibility Study associated with development of North Slope gas.  The analysis is ongoing, he said, with an overall study scheduled for release in November.  The study focuses on building a gas processing facility near Fairbanks.  The company would extract methane gas for local use.  It would also remove ethane and possibly propane.  An ethane cracker would convert the ethane into ethylene.  A polyethylene plant would convert the ethylene into polyethylene; the polyethylene pellets produced from the process would move to Anchorage for export to world markets.  Full Council Meeting.   Readers may find the mid-afternoon discussion of interest.  The agenda called for a council discussion late in the day following presentations by the producers, but in the midst of an active teleconference discussion with Alaska’s Washington representative, John Katz, the Council engaged in a discussion of formally endorsing Governor Tony Knowles’ 10-Point Proposal (Also, click in left column) prepared for consideration of the U.S. Senate Energy Committee, meeting on October 2.  The proposal would “Mandate the already permitted Alaska Highway route as the preferred gasline route….” Member Rep. Ethan Berkowitz said, that while his constituents don’t recommend supporting the Highway route he would support the 10-Point Proposal.   “I would like to see someone disprove the All Alaska route (i.e. LNG project),” he said.  Katz responded that any legislation supporting the Governor’s proposal could include provision for a spur line to Valdez “…for export purposes.”  Member Jack Roderick (Photo, left to right, Members Bill Corbus, Peg Tileston, Roderick, and Jim Jansen) observed that Alaska should be cautioned about asking for too many benefits in the legislation.   Thompson said, "The producers were invited today to review these 10 points; they have been given notice and invited to provide input to Mr. Katz.  The final result could be a blend of our views, producer and other views as it is a national project.  ----The Council voted to endorse the Governor’s plan---- Alaska North Slope Gas Pipeline Team representative Robbie Schilhab noted that the “…numbers and data are constantly changing, which is part of the risk posed by the project.”  With that foundation, he said, “We do not presently have an economic project.  We now need to see if we can continue to lower the costs of the project to see if we can reduce the overall cost.”  The price of gas, dipping to below $2/MCF a day earlier, he said, demonstrates the volatility of this sort of project.  Member Wunnicke asked about the impact on project economics of certain incentives that governments could create.  Schilhab said they could enhance the economics of a project but probably couldn’t make the difference between moving ahead or not.  Boyles clarified that producer financing assumptions contemplated 70% debt and 30% equity.  Thompson probed about the value of NGLs.  Schilhab said the feasibility work was based on BTU value, not MCF value.  Thompson observed that a 12% return on equity, together with consideration of NGL and incentive values would produce an economic project.  Schilhab, speaking from an Exxon Mobil viewpoint said that his company saw this as a high-risk project that requires a high rate of return.  He added that, “If we can reduce some of the risks perhaps we can drive down the costs and the ‘hurtle rate’ for each company.”  Jon Rubini asked about the value of ‘price floor’ incentives now being discussed.  Schilhab said, again from his company viewpoint, that if such an incentive came through the legislative process, the legislative process could change it later; thus, the risk would not be improved.  Roderick asked about the importance of Point Thompson gas to the project.  Schilhab said it was required to have an economic project.  Member Charlie Cole asked if Exxon Mobil would leave the gas on the North Slope “for perpetuity” if the project is not economic.  Schilhab said the companies considered it an important asset and would continue efforts to monetize it.  Boyles asked for an opinion on tax exempt financing.  Schilhab said it is a concept that could work.  Regarding the northern route, Schilhab said that a “third party trunkline” could be looked at to provide Alaskans access to the gas.  The cost, he said, would be about $1 billion for a 24-inch line extending to Fairbanks from Pump Station 4.   Alaska Gas Producers Pipeline Team colleague, Joe Marushack, joined in the presentation and referring to earlier questions said that NGL cost had not been included in current numbers but NGL revenue has.  Member Lee Gorsuch inquired about expandability of the system, asking if it was “consistent with episodic open seasons”.  Marushack said that a top priority of the project was expandability.  Gorsuch asked about environmental issues confronting a northern route.  Marushack said there were some, but there are also mountain-crossing issues associated with the southern route.  Thompson said the Council has heard from environmental groups and Inupiat people opposed to the northern route and wouldn’t that opposition result in a 2-3 year delay.  Marushack said the feasibility work had not yet completed risk analysis.  “At the end of the day,” he said, “we will have completed risk analyses on both the northern and southern routes.”  Both routes are safe, he said, and the study team sees “no show stoppers”.  Member Ed Rasmuson asked if the producers anticipated holding an “open season” at the first part of 2002.  Marushack said that schedule could hold depending on if all the major issues were resolved, including route decision, risk containment, etc.   Gorsuch verified that the producers have established no minimum wellhead price.  In response to questions about the source of pipeline steel, Marushack said that such a massive project would tax the limited capability for the particular specifications needed and that steel from the United States, Canada, Korea, Germany, Japan and elsewhere could be required.  (While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh...Draft Revision: 9-30-01)

9-21: The State Pipeline Ownership and Tax Structure Subcommittee of the Alaska Highway Natural Gas Pipeline Policy Council met Friday in Anchorage under Chairman Bill Corbus’ (Photo-left) leadership, to corbus8-13-01crop.pnghear testimony from government and industry experts.  Consultant William S. Garner, Jr. of Petrie Parkman & Co., responsible for assisting the Department in a portion of its SB 158 analysis re: state ownership, told members that of the many companies he has approached, “not one…objects to state equity or financial participation”.  He added that some seem puzzled at the state’s interest as such ownership would be “unprecedented”.  They believe the state should view the ownership issue purely as an investment, the state should not invest just to have a seat at the table, state participation will not impact risk factors and that state ownership could pose real or perceived conflicts of interest.  Member Dave Rose (former Alaska Permanent Fund executive director, photo-right) asked if the companies Garner spoke with had stated any expected rate of return.  Garner said they had not and that even the producer model did not reflect internal company positions on rates of return.  Garner discussed Duke’s purchase of Westcoast Energy, half owner of Foothills Pipe Lines, Ltd., suggesting that it removes any doubts some may have had about 100% Canadian ownership (See our story).  He suggested that while the sale will not close until 2002, Duke can be expected to assume a larger role in Foothills gas pipeline decisions.  Member Ken Thompson (Photo-left) cited as other reasons for Duke interest as being Westcoast participation in Alliance and Maritime pipelines.  Garner observed that the 9-11 event will spark increasing concern for energy security.  He pointed out that the only major gas project involving new domestic energy was an Arctic gas pipeline, that many competing LNG projects shared the liability of depending on imported volumes.  Corbus verified with Garner that project financing was still tenable.  Rose asked about coverage requirements, the ratio of excess revenue in a bonded project to debt payments, and Garner said it was too early in the study to answer.  Alaska Industrial Development and Export Authority (AIDEA) Executive Director, Bob Poe (Photo-right), briefed members on gas pipeline financing options. He made certain assumptions (i.e. $15 billion project, project financing with revenue bonds, etc.).  He then presented financing options, including revenue bonds financing entire project; financing 60% of the project, the difference financed with participant equity; and, revenue bonds supporting state’s ownership portion of the pipeline.  He then briefed the committee on related issues: availability of revenue to pay debt; economic viability of project; using production revenue to support debt payment; economy of scale of having one entity bond entire project, federal tax exempt issues.  Bond Attorney Ken Vassar of Wohlforth, Vassar, Johnson & Brecht accompanied Poe and addressed technical aspects of tax-exempt bond financing with respect to components of the gas pipeline.  He said that tax-exempt bonds might be available for certain parts of the project, but that this is only a possibility - whether it is a reality will depend upon further review and further definition of the project.  The only parts that appear to have a possibility of tax-exempt bond financing at this point would be port facilities at Prudhoe Bay and any solid waste disposal facilities that may be required as part of the construction effort.  Member Rose inquired as to whether a portion of the pipeline might qualify for tax-exempt bonding if it were used to provide gas locally.  This led to a discussion of the "two county" rule under the Internal Revenue Code and the sunset provision for local furnishing facilities.  The "two county" rule permits tax-exempt bonds to be issued to finance facilities for local furnishing of gas as long as the facilities are not used to provide gas to more than two contiguous "counties" (for purposes of the rule, a borough in Alaska is a county, but the Unorganized Borough is not).  The sunset provision requires that the facilities be owned by an entity that was engaged in providing gas to the same area on or before January 1, 1997.  Whether any portion of the project could meet these criteria will depend upon further review based upon a more specific proposal.  In response to questioning by Rose re: AIDEA participation, Poe said his agency might better serve by financing gas pipeline spin-off development, leaving project financing to a new entity.  Rose observed that up to 5% of the Permanent Fund corpus could be used for special equity projects.  Poe identified as the “biggest risk”, project completion.  Thompson pointed out and Poe agreed that contract carriage will make a predictable revenue stream possible.  Department of Revenue’s Larry Persily, speaking by teleconference, pointed out that General Obligation Bonds cannot be used for such a project since they can only be used for “capital improvement projects”.  Department of Revenue economist, Roger Marks (i.e. see his modeling for overland Canadian pipeline, LNG and GTL projects, new in left column) provided a list of possible state ownership disadvantages, including: not a proper role for government, conflicts of interest, imprudent use of Permanent Fund, etc.  Blythe Marston, Regulatory Commission of Alaska, reviewed contract and common carrier issues.  Member Taylor discussed stranded capacity issues.  Michael Hurley (Photo, right) of the Alaska Gas Producers Pipeline Team gave a status report, including a discussion of state and Federal tax policy.  His presentation argued for simplification of Royalty and Severance Valuation issues, including common royalty and severance terminology, transparent pricing, defining market price, agreeing on gas valuation terms, etc.  He suggested an appropriate vehicle for obtaining “simplicity, clarity, certainty, predictability…” of royalty, severance and ad valorem tax issues might be a “fiscal contract” endorsed by the Legislature.  Member Mike Navarre (Photo-right, 8-13-01) asked if these were “…the same sort of issues you seek with projects elsewhere?”  Hurley said that while the circumstances vary widely, the answer was “yes, we seek to minimize risk and increase certainty with all projects.”  Hurley added that governments can help by enacting enabling legislation (See Alaska Natural Gas Pipeline Act of 2001 in left column, along with other positions); not foreclosing on options (i.e. banning northern route).  He said the joint producer study could continue only if the expediting legislation were passed, the state creates fiscal certainty for the project and government does not mandate the route.  Hurley passed out a chart demonstrating that U.S. and Canadian government revenues would be substantially the same with competing projects (i.e. Southern Route, $66.2 billion for life of the project vs. $68 billion for the Northern Route.)  Hurly passed out another chart based on a number of assumptions, entitled, “Neither Route is Economic”, citing a Southern Route cost estimate of $17.2 billion and a Northern Route cost of $15.1 billion.  Thompson was concerned that determination of wellhead value needed to be clear and transparent; Hurley agreed.  Thompson and other members expressed concerns with assumptions used in the charts and asked Hurley to provide the Council at its Tuesday meeting (i.e. tomorrow) with supporting data, including basic gas price assumptions, natural gas liquids price assumptions, costs and other information.  He said that such support was needed, “…to help us understand and believe the results.”  Bonnie Robson (Photo-right) of the State Division of Oil and Gas pointed out that if one accepted the chart assumptions, both routes might be economic due to the value of NGLs, looking at the project through the lens of an entity other than a gas producer.  Also, transporting the gas to market would reduce an 8 bcfd gas reinjection cost requirement.  Thompson added that the pipeline would significantly reduce the negative cash flow gas reinjection produces.  After presentations, Chairman Corbus asked for observations.  Thompson said his Houston sources tell him not all producers want tax incentives.  Addressing the point of neither project being economically feasible, presently, he said, “Maybe we should have a brief discussion on ownership structures, let the producers off the hook and thank them for their work and look for a group of companies for whom a project is economic.  Maybe there is someone out there,” he said, “ who would like a good, secure 12% rate of return. Hurley responded that the feasibility work incorporating a 15% discount rate was not necessarily a rate to which all parties agreed, and was only used as an assumption for purposes of the study. (While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh...Draft Revision: 9-24-01, 915 ADT.)

7-11.  Anchorage: State Royalty Share Committee Meeting Report:


7/12Special Report: ALASKA HIGHWAY NATURAL GAS PIPELINE POLICY COUNCIL.  Yesterday the Council's State Pipeline Ownership and Tax Structure Committee met at the Atwood Building in Anchorage to raise and discuss key gas project (i.e. GP) pipeline ownership and tax structure issues, though ownership subjects dominated the discussion.  Chairman Bill Corbus (Photo-seated right) led the discussion for members with briefings provided by Permanent Fund Executive Director Bob Storer, Revenue Commissioner Wil Condon, AIDEA Executive Director Bob Poe and Department of Law representativesDan Fauske, Executive Director of the Alaska Housing Finance Corporation, attended as a resource and invited guest as did Governor's Pipeline Cabinet member, Community and Economic Development Commissioner Debby Sedwick.  Council members participating in the public meeting included Mike Navarre, Ron Duncan, Ed Rasmuson, Mike O'Connor and Jack Roderick, with Special Assistant to the Governor Ken Freeman facilitating (Photo-left).  (Information on members included above).  

The Committee will advise the Council on matters pertaining to state state royalty share issues, promotion/facilitation of GP (i.e. Gas Project) financing, state ownership issues, evaluation of relevant state tax structure.   Various committee reports, including this committee's, are due to the Council by October 1, and the Council's charge is to provide all of its final recommendations to the Governor by November 30.  It is during this interim period that the various committees are reviewing alternatives for state involvement and taking public comment from citizens throughout Alaska.

For purposes of yesterday's discussion, the Committee had to make assumptions regarding the 'cost' of the GP and potential state investment scenarios (See draft, ...Investment Scenarios).  Since producers and various project proponents are engaged in tens of millions of dollars of research (following 30 years of possibly $1 billion in research), and the state is not, the committee acknowledged that the final costs may be far different than those assumed at this time.  For the sake of discussion yesterday, the committee assumed a $12 billion project, capital being financed with 40% equity and 60% debt.  Under the first scenario, the state would own 12.5% (i.e. gas royalty percentage) of the GP segment from Prudhoe Bay to Fairbanks, with a state equity requirement of $180 million.  A second scenario would have the state owning 12.5% of the GP from Prudhoe Bay to Alberta (Fox Creek) with a state equity requirement of $600 million.  The last scenario would require $1.2 billion in state equity with the state claiming 25% ownership of the GP from Prudhoe Bay to Fox Creek.  According to various member comments, a primary reason for exploring the option of state ownership at all, dealt with the value of having the state at the table of the GP's Board of Directors to oversee state interest. 


Revenue Commissioner Condon (Photo; also, see draft DOR questions here) identified "places" for the state to look for capital to fund any of the scenarios, cautioning that under present financial circumstances, there wouldn't be general funds available for these alternatives.  Funding sources include:  1.  The Constitutional Budget Reserve Fund.   Condon advised members the fund today totals $3 billion, and that "it was established with a role of providing a cushion when oil prices are low.  My strong recommendation would never be that we draw it down to zero and that we always maintain some appropriate minimum balance."   2.  The state could look to the Permanent Fund's Earnings Reserve Account.  3.  The state could establish a new, independent "Authority".  Participants concluded that acts of the Legislature would be required for all three funding activities.  Chairman Corbus asked Department of Law advisors if they believed such participation would require statutory authority, and they replied that they did.


Permanent Fund Executive Director Storer (Photo-foreground, as Governor Knowles' legislative assistant, Mike Abbott-right, observes) answered four written questions posed by the committee and other verbal queries.   Storer reviewed Permanent Fund investment policies and legislative mandates.  Summarized, the Permanent Fund adheres to the "Prudent Investor Rule," he said.  He counseled that, "clear legislative direction would be best for any {GP} investment."   Any Permanent Fund GP investment would include such considerations as rates of return, liquidity, and compatibility with total diversification of the portfolio, among others.  A GP investment, he said, "must have comparable yield to other investment opportunities."  Member Ron Duncan inquired as to the Permanent Fund's largest current investment, to which Storer replied, "U.S. Treasuries."  Commissioner Condon, speaking as a member of the Permanent fund Board, said of a potential pipeline investment, that "if a GP proposal came to the Permanent Fund Board today, with existing policies, it would be precluded given the framework which exists now.  In my judgment, a change of policy by the Legislature would be needed."

The committee discussion paused for some time on the subject of financing by a separate, independent Authority of the state.  Member Ed Rasmuson (Photo-below, left)  questioned Condon on the history of gas pipeline financing over the past 20 years.Img396.png  Condon replied that pipelines used to be "universally" financed on company balance sheets, but in recent years, more have used project financing.  "The more we get into this the more important I believe it is to determine the financing practices employed during the last 20 years."  Members concurred with Rasmuson’ s reasoning, concluding that with advances in pipeline industry financing and the state's own experience in revenue bond and tax exempt municipal bond financing, more research should be done.  "I think (Rasmuson's) comments are important," said member Roderick (Photo, brown coat); "we Img397.pngneed to know how others approach such financing issues."  AIDEA Executive Director Poe (Photo, above-right), with support from Commissioner Sedwick ("Our deliberations about ownership interest in a GP are ... timely"), stated their resources would be available to the committee (See Poe's presentation outline, here).  AHFC Executive Director Fauske also offered support of his bond counsel and other help that may be needed.  Ken Freeman of the Governor's office agreed to assist the Chairman in coordinating support for finance research among the various state offices and private entities.

Condon advised the committee that Section 103 of the IRS Code would need to be amended to provide for a GP Authority to be tax exempt.  But he offered the encouragement that from his viewpoint Congress would be more amenable to the concept than it indicated 20 years ago.  "At our present bond rating," he said, "we can probably convince the rating agencies to support a $600-800 million investment."

(Note: While the author endeavors to produce accurate reports, he encourages all persons and offices named in this and other articles to provide additions/corrections to ensure validity of the historical record.  -dh)

7-19 Barrow.  Much of the testimony identified below is available here.

“A Significant Day in the Life of Northern and Southern Gas Pipeline Routes...and perhaps ANWR”

Governor Tony Knowles did not name the “Alaska Highway Natural Gas Pipeline Policy Council” without design.  While the Council has courteously—and one might say—patiently, listened to virtually all project proponents in its community meeting schedule covering the state (See schedule here), the declared objective has always been to build momentum in support of a Southern pipeline routing along the Alaska Highway.  At no time in the Council’s 5-month history has evidence of that intent and growing momentum been clearer than at yesterday’s meeting in Barrow. 

Four citizens gathered in the Anchorage conference room of the Governor's office in the Atwood Building, as lucid and heartfelt presenters painted a picture for us of what appeared to be a large audience gathered in the North Slope Borough Assembly chambers in Barrow.  We quietly watched the speakerphone on a polished conference table as the drama unfolded before us in a Technicolor movie focused on the screen of our own imaginations...and the conference operator professionally verified that Anchorage was plugged in, then Atqasuk, Anaktuvuk Pass, Kaktovik, Nuiqsut, Point Hope, Point Lay.


Co-Chairman Frank Brown (Photo-Brown, left, touring Phillips' LNG facilities at Nikiski with host, George Findling, during 5-17-01 Council meeting in Kenai), a retired Arco executive familiar with the Alaskan Arctic and her people gently opened the meeting, asking everyone to devote a moment of silence to the memory of Rosemarie Maher, a Council member and recently deceased President and CEO of Doyon Ltd., the Fairbanks-based Alaska Native Regional Corporation.  In a resonating southern accent, Brown warmly thanked the North Slope Borough, Arctic Slope Regional Corporation’s Jake Adams and former state Senator Al Adams (Council Members) for helping to facilitate the meeting.  He thanked Governor Tony Knowles and Lt. Governor Fran Ulmer for their attendance and asked them to speak. 

Knowles again thanked the group’s hosts, then settled into his message.  He recognized the leadership North Slope residents have shown through their support of economic development balanced by protection of the environment and subsistence lifestyle.  "The North Slope is ground zero for oil and gas development," Knowles said.  "The Inupiat people of this region strongly support jobs, schools, and sewer systems that oil and gas production brings ....  They are also fierce protectors of whales, sea mammals, and a subsistence way of life.  That's why they support the Alaska Highway route and adamantly oppose the risky gamble of a pipeline into the Arctic region."  Ulmer referred to her May visit in which hunters escorted her out on Beaufort Sea ice to witness subsistence landings of two Bowhead Whales in the same day.  Yesterday she visited municipal utilities, including the natural gas plant.  She said that there are lessons all Alaskans can learn from North Slope residents on “how the state can balance a subsistence lifestyle with resource development.”

Natural Resources Commissioner Pat Pourchot offered the official state pipeline presentation, saying that the “purpose of the Administration” is to move gas along the highway while making use of the gas in Alaska and achieving other benefits.  (See full presentation here.)


Brown introduced North Slope Borough (NSB) Assembly President, Molly Pederson (Photo-right, 7-19-01, by Noe Texeira), speaking for Mayor George Ahmaogak, now attending International Whaling commission meetings in London. She spoke of  NSB, "...partnership with the state and the industry", balanced by "...adequate protections for the land and the wildlife...."  In a quiet but forceful voice, she told of North Slope citizen support for ANWR efforts.  "The (ANWR) lobbying effort has demonstrated that our people get a very warm reception from Congress," she said.  "...because we have an agenda that extends beyond oil income...and because we deliver the most powerful response to the Gwich'in, who are among the environmentalists' most potent weapons".  She moved to the subject of the day.  "We bring the same attitude of partnership to the issue of gas development....By using the existing pipeline corridor instead of the Beaufort Sea, the highway route makes the most environmental sense....we increase the potential for in-state use of gas....gas production and transportation down the existing pipeline corridor...will help to sustain our tax base...."  (Full text available here.)

Barrow Whaling Captains Association Vice President, Charlie Neakok, speaking for the Alaska Eskimo Whaling Commission (AEWC) offered empassioned endorsement of the Alaska Highway route, first stating that  "We understand that the United States needs North Slope oil and gas, and we are a people who believe in sharing.  ...there have been some indirect physical benefits to our communities from oil development and....we gladly acknowledge them and are grateful for them." As to pipeline routing, Neakok said, "...the AEWC supports this...'Alaska Highway Route' for a number of reasons....access to natural gas...job opportunities...North Slope Borough tax base....The AEWC adamantly opposes the proposed...'Northern Route'."  That route, he said, would "go directly through the fall migratory route of the bowhead whale...through important feeding areas for the migrating whales...disrupt the diet and lifestyle of the many communities and families."  Finally, he said, "We will share...up to the point where they threaten our subsistence....Then we will not share anymore.  We will fight....we will oppose them absolutely."  (Full text available here.)

Former Natural Resources Commissioner John Shively, representing Foothills Pipe Lines Ltd., announced approval of a memorandum of understanding with the state to continue work, on a Right of Way application first filed in 1981, involving about $2 million for approximately 230 miles of routing.

Chairman Brown invited Alaska Gas Producers Pipeline Team's Curtis Thayer to take the microphone for an update on the over $70 million study project designed to produce a pipeline routing decision and FERC application by year-end or shortly thereafter.  (See 5-28-01 Archive reference and this week's Legislative testimony of the Producer Team scheduled for uploading here this weekend.)  The Team is studying the two major routes and expects to have results and a FERC application by year-end or shortly thereafter.  About 90 company employees are assigned to the project with support from about 500 contractor employees.  ...    Even those at the other end of a speakerphone could sense growing tension in the meeting atmosphere when, quite unexpectedly, the Governor himself began to question Thayer:  Acknowledging that, as many have observed, Thayer is , "...a good representative of the producers," Knowles wanted to know, in light of the "outstanding testimony of AEWC" how the companies were going, "to quantify this kind of testimony".  Council members began to probe Thayer with similar questions, many of them rhetorical, and offering their own comments.  Council Member Carl Marrs, also President of Cook Inlet Region, Inc., wondered: "How do you respond to these groups on the North Slope that are most affected?" Thayer repeated that the companies were in the midst of a study of the two primary routes and that , "...neither analysis is complete."  Member Bob Penney, counseled, "I hope you'll take this message back...."  In response to a question from Member and Fairbanks North Star Borough Mayor Ronda Boyles, Thayer verified that the "human elements" of the alternative projects would be considered.  Former Attorney General and Council Member Charlie Cole of Fairbanks delivered testimony on behalf of the Alaska Gasline Port Authority (LNG project) earlier in the week and wanted to know how anyone could say the northern route would be cheaper if studies on the sea bed were incomplete.  Thayer said that without checking with his bosses (welcome pause for laughter), he could say that it would involve a shorter distance.  Council Member Ken Thompson, said that speaking as a former president of Arco Alaska, Inc., the overall benefits to the state should be considered, even if a certain project resulted in a "...lower cost per MCF."  (Obtain Thompson's 7-9 Chamber PowerPoint speech here, story below.  He told Northern Gas Pipelines this week that "...the primary focus of the speech was "Clean Energy Self Sufficiency for Alaskans".  This important vision will be realized if a gas pipeline comes will not be realized if a pipeline goes north....  The secondary focus of the presentation was the concept of a centralized trading hub off a southern gas pipeline route to allow for future access to multiple markets, including access within the state for the very valuable North Slope gas resource for Alaskans.")  Member and retired BP executive Brian Davies wondered if Thayer's group had an economic project; Thayer repeated that studies are ongoing, that when the analyses are complete the companies would make their decisions.  Attorney Cole probed further: "What is it that leads you to say the project is not economically viable?"  Thayer said he could not announce an economic project because the economic analysis is not complete and, "...until such analysis is complete we can't know if it is economically viable."  He said the process was like designing a car, that alternatives would be presented to the companies and they would choose a design. 

Arctic Slope Regional Corporation Vice President-Lands, Richard Glenn, spoke eloquently of ASRC's desire for "Access: Capacity, ...accommodating areas of new natural gas production such as in the central Arctic; the design, construction and future operations of this major development project; equity position in the Alaska gas pipeline or any of the related systems."  He reminded the Council that "...ASRC is the largest landowner on the North Slope outside of the Federal government, with title to more than four million acres of surface and subsurface estate.  ASRC's lands include more than three million acres in the central Arctic foothills, one of America's premier natural gas provinces."  Glenn then said that, "ASRC would like to join the North Slope Borough, the whaling captains of our villages, and many others in supporting an overland route for the Alaska natural gas pipeline."  (Full text available here.)  The ever affable Charlie Cole, possibly not intending to rise above his inherent Fairbanks and LNG project conflicts, observed that the northern route would provide no gas for Fairbanks and asked Glenn, "Do you think gas would benefit Fairbanks?"  Once again room tension eased with laughter and Glenn cheerfully responded, "I can take a stab at that, Charlie...", reiterating the superiority of gas as a fuel to coal, wood and diesel.  Member Jack Roderick questioned Glenn further on his earlier statement regarding pipeline ownership and Glenn replied that ASRC wanted, "...a place in the process...," and ways to, "...better the lives of our shareholders".

Moving to the teleconference network, Chairman Brown called upon Alvin Lieb of Atqasuk, who supported an overland route for the pipeline.  Kaktovik Inupiat Corporation President Fenton Rexford spoke for "110 shareholders ... in the middle of 1002 (ANWR)", also supporting an overland pipeline route and observing that, " conditions this summer are very thick. ridges this summer bigger than the Egan Convention Center" have moved up on beaches and could preclude company sea bottom research.  Jack Shaeffer of Point Hope, Will Tukrook of Point Lay and Kuukpik Corporation President Isaac Nukapigak of Nuiqsut also expressed opposition to the northern pipeline route. 

In addition to those named above, other Council Members attending included Bill Corbus, Peg Tileston, Jon Rubini, Anchorage Mayor George Wuerch, Jim Sampson and Grace Schaible who all expressed appreciation to their hosts as the meeting opened.

Just as the impressive array of stakeholders expressed support for a pipeline route, so did they reaffirm solidarity for the need to properly explore the small portion of the Arctic National Wildlife Refuge previously set aside for that purpose.

(Note: See author's commentary on this week's events here.  While the author endeavors to produce accurate reports, he encourages all persons and offices named in this and other articles to provide additions/corrections to ensure validity of the historical record.  -dh)


8/2:  Southeast Council Meeting (Juneau); also, see Anchorage Daily News, AP story On Thursday (8-2-01) the Governor’s Alaska Highway Natural Gas Pipeline Policy Council met in Juneau.  Sessions in the morning and early afternoon covered work of several committees, followed by a brief business meeting and public testimony.  (Northern Gas Pipelines took the following notes via teleconference, thanks to GCI; those quoted in this informal report, prepared from notes, are invited to provide additions/corrections to assure the accuracy of this record.  When the official minutes of the meeting are transcribed and available, we will provide a link here.)  Council members daviesulmer-crop.pngattending the Baranof Hotel meetings included: Jim Sampson, Co-Chairman (Photo-right, visiting Phillips' LNG facility at Nikiski, 5-17-01); Frank Brown, Co-Chairman; Mayor Rhonda Boyles, Bill Corbus, Brian Davies (Photo, left touring Nikiski facilities with Lt. Gov. Fran Ulmer and Council, 5-17-01), Ron Duncan, Mike Navarre, Ken Thompson, Jack Roderick, Peg Tileston, and Esther Wunnicke. Governor Tony Knowles, various state and elected officials from around the state attended as well.  Natural Resources Commissioner Pat Pourchot, provided the State's standard, gas pipeline briefing presentation, available here.  Following are summaries of two committee meetings and the general session:

Federal/International Action Committee: Charlie Cole, Chairman

Chairman Cole introduced Alaska’s longtime Washington D.C. representative, John Katz (Director of Alaska State/Federal Relations and Special Counsel to Governor Knowles), and Robert Loeffler (former Alaska Assistant Attorney General, Attorney, Morrison & Forrester) both of whom attended the meeting via teleconference.  (Please reference Northern Gas Pipelines Links to the "AGREEMENT BETWEEN CANADA AND THE UNITED STATES OF AMERICA ON PRINCIPLES APPLICABLE TO A NORTHERN NATURAL GAS PIPELINE", the "Treaty", along with Canadian legislation; and bibliographical reference to THE ALASKA NATURAL GAS TRANSPORTATION ACT OF 1976 "ANGTA".  Northern Gas Pipelines has requested a copy of proposed, draft producer Amendments to the "Securing America's Future Energy Act of 2001, H.R. 4" now being circulated for comment, and will link them here shortly.  Now available, here.  8-9-01 with background paper, here.Cole asked about draft enabling legislation North Slope producers have submitted to various offices for comment, ultimately intended for Senate Energy Committee consideration.  Katz said it could be seen as an alternative to the Alaska Natural Gas Transportation Act of 1976 (ANGTA) with respect to the Southern Route, providing a 2001 process for enabling as contrasted with the 1976 process.   It could also give a “leg up” to producer applicants due to its criteria, including gas ownership.  “I think that in absence of these enabling amendments, if the producers proceed with a route other than the southern route they would have to comply with requirements of the Natural Gas Act.”  He observed that with the legislation applicants would have access to expedited procedures for the northern or other routes.  The amendments would “expedite and circumscribe the administrative, legislative and judicial processes with respect to either route,” he said.  Asked about Foothills’ position, Katz said, “I think Foothills might argue that ANGTA provided an exclusive franchise and they might even argue that theirs is the exclusive route that has been sanctioned….” He added that Foothills might also say that the new procedures would “skirt previous agreements”.  Asked if the draft amendment could affect the success of the northern route, Katz said, “I think this makes the Beaufort Sea route easier.  If they picked the northern route, they would be able to avail themselves of an expedited process…and in absence of this they would have to comply with provisions of the Natural Gas Act that does not provide expedited…processes.”   Loeffler added that the 2001 bill would, “provide an overriding of older legislation which in effect writes off ANGTA.  On its face,” he said, “this new legislation purports to be neutral…but the practical effect is that without it Foothills has an argument that they have rights under the 1976 legislation and the producers have no such rights….” Cole asked if the “…producers, in your view sent any signals in the last few weeks that they favor the Beaufort Sea route,” and Katz replied that the producers have, “said to us nothing in private that they haven’t said publicly.”   Thompson asked if Katz’ office received an advance copy of the legislation, or did the producers do an ‘end run’.  Katz said that “…to his knowledge there was no consultation with state officials…,” but he said the producers had stated they were submitting drafts to all of the offices and would consider all input prior to formal submission to the Senate Energy Committee.  Thompson asked about the process of the legislation.  Katz said that the House had finished the bulk of its energy work for the year.  “Clearly,” he said, “the focus shifts to the Senate Energy Committee.  “…the expectation is that in mid September the Committee will begin to mark up oil and gas provisions…the producers want to be in a position to interact with the committee staff in August…the Senate leadership clearly wants to produce its own version of energy legislation, moving it to the full Senate by Fall.”  Sampson asked about the “Billy Tauzin amendment” (i.e. eliminating consideration of a Beaufort Sea route).  Katz replied it was in the Energy Bill.   Wunnicke observed that the Producers may not feel a need for an expedited approach in Canada.  Katz said that he had been in touch with consultants and other sources, that “…as far as I know there is not a contemplation that similar legislation is needed in Canada.”  Cole brought up the subject of Prime Minister Chrétien’s “open mike” statement last month to President Bush indicating support for the northern route.  Ken McKinnon, Chancellor of Yukon College, introduced himself offering staunch defense for the Alaska Highway route, the Foothills project, ANGTA and US-Canadian treaty agreements.  He qualified his remarks by describing frequent trips to Alaska, family relationships here, his former responsibilities as cabinet minister under Premier Mitchell Sharp and his working relationship with former U.S. Federal Inspector, Jack Rhett.   “Our Prime Minister (Chrétien) is astute…he doesn’t have to make a decision immediately on either route…the Canadian position really is that they say eventually a pipeline down the Mackenzie River will bring Canadian gas to Canadian markets….  We in the Yukon can’t quite understand why there’s even talk about a pipeline across the Beaufort.  The Gwich'in would fight it with everything available to them. The Beaufort route is a ‘no-go‘ as far as the government of Yukon and Yukon first nations are concerned.”  McKinnon said that Foothills has kept its right-of-way valid through the Yukon.  “Foothills,” he said, “believes they have upheld their rights under the treaty and believes they have an enforceable treaty.”  Thompson referred back to the 2001 Energy Act draft amendments attributed to the producers as suggesting that the provisions were a “direct attack on the treaty”.  McKinnon responded that, “Foothills has spent over $500 million protecting their rights under the treaty and would fight the producers all the way….” Katz responded that the producers have represented that the amendments wouldn’t upset ANGTA, but observed that whomever, “…has the gas determines how it goes.  I do not think that the executive branch could simply set aside the treaty….” Loeffler added that, “…a treaty can be amended by the two countries…the legislation raises questions with respect to ANGTA and whatever treaties and agreements are still in force.”  Roderick said that Mackenzie Delta producer statements suggested that Delta gas could stand on its own.  McKinnon said more proven reserves would be needed and that, “I’m of the opinion that 10 years from now the battle will be whether there will be a lateral along the Dempster Highway to join the Alaska Highway pipeline at Whitehorse.”  Sampson asked if producer ownership of a gas pipeline should be an issue.  Katz said the question is not currently at issue in Washington.  Davies distinguished between Dempster Highway and Mackenzie River pipeline routing.  McKinnon said both the Dempster and Mackenzie Valley routes are being studied.  Davies observed that the Delta-only project was focused on the Mackenzie River route, not the Dempster route, as the former is shorter.  Rep. Ethan Berkowitz (Photo, right) asked if the ANGTA/treaty would affect any LNG project.ethanberkowitz.gif  Loeffler opined that the treaty doesn’t affect an export project.  Loeffler said he’d been advised that northern route aboriginal land claims have been resolved that that issues about aboriginal pipeline ownership have not (Note: refer to Archives, primarily from May to current date for numerous reports on this issue.  -dh).  “In the South,” Loeffler continued, “my understanding is there is one claimant as opposed to several in the North, but it has not been resolved…but…aboriginal land claims issue is not determined to be huge….” McKinnon said that all of the northern first nations support a Mackenzie Valley pipeline except the, “…first nations in the Sahtu region have broken away.”  (Note:  again, see extensive reports herein.  –dh) Cole asked about use of Alaska’s royalty gas interest as a way to advance Alaska’s position.  Katz said his office had been focusing on the so-called enabling legislation.  He said Phillips has proposed amendments to the Federal tax regime, but Exxon and BP are not involved in that effort.  In response to Cole’s question, he said, “Alaska should express itself in appropriate places…don’t know precise time line…but we should approach this earlier rather than later.”  He then said he sees his office as advising the Policy Council but that the Council and State should give him guidance on conclusions.  Loeffler said the State and Council should consider the implications of the legislation.  “John and I will be asked for advice by the Administration,” he said.  “I would suggest that as a study step you look at the 1976 legislation and the treaty agreement….”  (i.e. references in introductory paragraph, above)  He counseled that “…as everyone knows…” in the legislative process provisions are added and dropped.  Cole expressed concern that the Council’s recommendations to the Governor were not due until November, but that the proposed legislation would be under consideration by the Senate Energy Committee in the August-September timeframe.   Thompson added that some of the enabling legislation favors a northern route.  Cole said that in choosing routing one might consider the State’s 1/8 royalty nanettethompson.jpginterest in fully developing the gas reserves.  Davies clarified that Cole meant there should be an opportunity for all gas producers to have access to the pipeline.  Thompson recalled a conversation with Nanette Thompson (Photo, left), of the Alaska Regulatory Commission regarding access for all gas producers.  Then he said that while Alaska owned a 1/8 royalty share of the 35tcf of proven reserves, it really should be concerned about its 1/8 interest in projected reserves of up to 100 tcf, “…which argues that the State should have input into this legislation.”  Boyles asked about Foothills’ reference in legislative testimony two weeks ago to “withdrawn partners”, to which Loeffler gave a brief explanation of liability, partnership agreement, etc.  Thompson said, “I would move very quickly on this legislation…. I was concerned to see it move so quickly…. Someone needs to look at the treaty…at least give initial feedback on the legislation.”   Cole observed that the Council should, “…do a little more than simply alerting the Governor….” Thompson recommended that one action step the Council could take would be to give input by a certain date.  “I am planning to write the Senate Energy Committee myself….” Cole concluded that, “If we want to see the route follow the highway we should not be sanguine about legislation which greases the way for an offshore route.”  Thompson suggested that Council members Jeff Feldman and Jon Rubini (i.e. not present at meeting) be asked to take comments from members and assemble them for presentation to the Governor.  Chairman Cole verified consensus with that course of action and the meeting adjourned.

Access for In-state Gas Use and Future Opportunities:  Ken Thompson, Chairman: 

Chairman Thompson said that the royalty formula for determining the value is, “…something we may look into for gas.”  He suggested looking at the “higher of” methodology: market value vs. actual proceeds, and said that during a fact finding trip, the state of Texas had offered to provide Alaska with its model.  Brown gave an example of California determining the value of a gas field near Long Beach by setting a fair market value, which the companies pay regardless of what the actual sales price is.  Thompson introduced Bonnie Robson, Deputy Director of the Division of Oil and Gas, who discussed methods of valuation embodied in lease sales, including: “field market price, value at the well, value not less than, price agreed to pay at well by purchaser, posted prices by lessee or other producers in the field at the well, etc.  She asserted that there are clearly alternative measurements of value.  She noted it is, “mathematically given”, that using “higher of” measures of value always produces a higher value than if one used any single measurement of value.  Thompson said that, “When we asked in Texas if they hear complaints from Exxon, Phillips or BP about ‘higher of valuation’, they said, ‘no’….  These parties have been living with these provisions elsewhere for decades.”  Davies referred to the concept of a “quality bank”, given that, “…the gas person ‘a’ puts in the line is different that the gas put in by person ‘b’.”  Thompson briefed the committee on European Union valuation principles and the need to properly monitor “forward integration”, to assure proper income to the state.  Robson said her division has reviewed a number of issues applying to gas pipeline tariffs and valuation of gas.  Some gas principles are in common with oil but some are unique to a gas line.  Pipeline tariffs are based on estimated costs, she said, but actual costs may be different.  “We don’t want to reward anyone for overestimating costs,” she said.  Davies was concerned with lines of responsibility: valuation and royalty issues that should be the concern of the Council and those that should properly belong with government administration.  Thompson concurred and the meeting adjourned as the Council regrouped to entertain public comment.

Public Comment:

Haines Mayor Don Otis offered the city as a future export site for ANS gas, highlighting port facilities and highway connections to Fairbanks.  Sampson asked for producing company comment, indicating the Council ‘enjoyed’ Curtis Thayer’s appearance in Barrow (See 7-19-01 report above).  Speaking for the Alaska Gas Producers Pipeline Team, Michael Hurley of Phillips Petroleum Co., smoothly delivered the standard presentation: mission, 100 company employees, over 500 contractor employees, seven lenses of evaluation, need for cost competitiveness with other sources of supply, etc. (See Team presentation, here).  Boyles observed that in Barrow the, “…testimony was overwhelmingly, profoundly against the northern route.”  She asked if the Team’s principals received that message.  Governor Knowles, following up, said, “…if the message was heard, I hope that in the next presentation your ‘seven lenses’ would turn into ‘eight lenses’, the 8th being subsistence.  That would make six of the eight lenses clearly linked to the highway route….” Hurley answered that the message had been heard.    Berkowitz said there had been no mention of an all Alaska route and, “…has it been studied by the companies…dropped off the radar screen.”  Hurley indicated the most likely scenario today was a pipeline to the Lower 48 but that some of the companies continued to study LNG and GTL alternatives.   Corbus expressed interest in gas pipeline ownership and state participation.  Hurley said the companies are aware of the State’s potential interest and that, “we’re not opposed to it.”  Thompson commented on the potential synergy of an LNG route with the highway route.  Hurley concurred that current LNG project scope of work involved that synergy and that, “…one would expect that to make a difference, but the top part doesn’t come for free….” Brown spoke of a “hybrid” pipeline concept, involving contract and common carriage.  Hurley said he wasn’t aware of a situation inbethkerttula.gif clarksgruening.jpgwhich common and contract carriage would be combined in a FERC regulated pipeline.  Sampson welcomed Permanent Fund Chairman Clark Gruening (Photo, left) and Rep. Beth Kerttula (Photo, right) into the room.  Robert Venables observed that while “Haines is a valley of eagles, I’d also suggest it is a valley of opportunity.”  He reinforced Mayor Otis’ remarks.  “We have a deepwater port…wonderful road straight to Fairbanks…makes it logical for Haines to be involved with staging areas during the construction phase.  We’ve had gas producers come through as they make their analysis,” he said.  In the future, Venables said Haines could fulfill a marketing role, processing the gas for LNG shipment to Asia and/or processing other gas components for sale in Southeast Alaska.  Bill Leighty introduced himself as director of the Leighty Foundation and suggested various concepts including conversion of methane for fuel cell applications.  Teamsters Local 959’s Tim Sunday gave his support for the Highway route and emphasized the importance of providing Juneau workers an opportunity to obtain pipeline jobs.  Dave Hunts of the Skagway City Council said his town was the gateway to the Yukon, with such facilities as a haul road, railroad, deepwater port, and expressed support for development of Alaska’s natural resources.  White Pass Railroad president, Fred McCourse, said pipeline work would give Skagway the opportunity for non-seasonal jobs, stimulate the Whitehorse economy, which benefited Skagway as a logistical center.  He described local cooperation and support for the Highway route from the railroad, the city, the Teamsters, the Marine Highway.  Sue Schraeder represented the Alaska Conservation Alliance.  She did not support any pipeline route and expressed determined opposition to the northern route.  She expressed concern against “streamlining or expediting” processes applying to any project, supporting a “full public EIS process on all routes and formation of a citizens advisory council”.  Thompson asked for her opinion on whether a northern route “…could ever be permitted”.  Schraeder said, “…’over our dead bodies’ comes to mind…(laughter)”.  Thompson said, “We’ve certainly heard that from the people on the North Slope….” Schraeder said she was particularly concerned about “…the safety of going under the sea and under pack ice….”  Knowles thanked Schraeder for her comments and encouraged her national affiliate organizations to become engaged.  Don Ethridge, AFL-CIO lobbyist, spoke in support of a southern route, emphasizing the need for an “economic boost in Southeast.  …we want to see as many Alaskans as possible at work on the project,” he said.  Frank Avezak, Chairman of Alaska Interstate Gas Company registered support for “…the Administration’s position of bringing gas as close as possible to Haines.”  He indicated his company has recent RCA certification to serve up to 25 communities, “…from Kodiak to Metlakatla”.  He would provide methane, propane and butane to the service areas from a purchase of state royalty gas.  Jamie Parsons of the Juneau Chamber said the Highway gas project would be good for Southeast Alaska.       -dh

(While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh...Draft Revision: 8-5-01, 1215 ADT.) 


Chairman Bill Corbus (Photo-8/13 meeting) convened his "State Pipeline Ownership and Tax Structure Committee" of the Alaska Highway Natural Gas Pipeline Policy Council, at the State’s Atwood Building in Anchorage.  Following is a summary of presentations, questions and answers:

Revenue Commissioner Wil Condon reported on the status of research required by SB 158 to be competed by January 2002.  As with other committees, Corbus’ shares the limitation of having its charter end by November with the Council’s final report scheduled for submission to the Governor.  Meanwhile, the US Senate Energy Committee is likely to have completed its revisions to the Energy Act by then and the producer group is not expected to issue the result of its routing study before year-end.  In that context, Condon said his department will, “…share with you preliminary conclusions, but we are now in the information gathering stage.” 

garner8-13-01crop.pngCondon then introduced consultant William S. Garner, Jr. of Petrie Parkman & Co. (Photo-right), responsible for assisting the Department in a portion of its SB 158 analysis.  “The reason we asked Bill here today is that at the last meeting several members expressed interest in how large gas projects could be financed in the marketplace today.”  Garner provided a detailed review of his company’s origin and operations.  He said that many, “…but not all pipelines are ‘project financed’….”   The advantage is that lending institutions will rely on the credit worthiness of the individual project, not the equity of the project’s owners, “unless that is part of the financing package.”  He said that institutions look for justification based on an understanding of shipper contracts for gas.  Then, project risk issues (i.e. markets, environmental, timing, political, sponsors, construction, technology, tariffs and engineering) assist in determining the debt/equity ration investors will assign to the project.  Committee Member Ed Rasmuson (Photo-left) observed there would be many institutions and rased7-8-13-01bill.pngfirms which specialize in such financing and Garner concurred.  Member Dave Rose (Photo-below, right) inquired about the typical ‘coverage ratio’ for such financing.  Garner said, “Typically you would like to see 1.3-1.4, but implied that the risks associated with an Alaska gas pipeline might require a greater coverage requirement and more equity than typical projects.  (Note: ‘Coverage ratio’ refers to the amount of revenue in excess to its debt payment which a project must achieve in order to give investors confidence in the sufficiency of project cash flow.  -dh)  Rasmuson inquired about ‘ship or pay’ sales requirements which guarantee investors that regardless of future conditions the buyer will pay for the volumes for which he has contracted.  Garner said that these were common.  Rose inquired about ‘completion risks’ (i.e. the risk that a project might be nearlyrosedave3.png completed, but then fail.  –dh)  Garner discussed lines of credit.  Rasmuson asked if Garner had, “…seen many such projects with government ownership.”  Garner replied that he had not known of such large projects being government financed in the US though there was precedent in other countries.  Rose expressed concern that if the State wished to employ tax exempt financing a gas project’s requirements could exceed the allowed quota for such financing in Alaska, that Congressional exemption would be required.  He asked if Garner’s research would explore Alaska’s public financing quotas and the process by which the quota could be raised.  Garner affirmed.  Rasmuson briefed the Committee on prepayment penalty requirements common in some financing agreements and cautioned that if these were present in gas pipeline financing the economics of future refinancing to gain lower rates might be more difficult.  “This is something the State should look into, since a reduction of rates may result in a desire to refinance.”  He then added that, “…it appears that the financing may be fairly routine; but, the political aspects could be more difficult….  If we go the Canadian route we could cross several provinces/territories all with their own nuances.”  Garner concurred.  Corbus observed that cost estimates for an Alaska Highway route have increased (i.e. note: producers have recently indicated the cost could be within the $15-20 billion range).  “Do you still see an appetite in the market for financing this type of energy project,” he asked.  Garner said that, yes, it was the only major North American project immediately available.  While all projects in the world will be looking to the same financial markets, he said, “…obviously, a U.S. project will be attractive to the marketplace.”  Corbus cited reasons some say the State should invest in the gas pipeline.  Garner said his firm was studying that issue and  while there are clearly positives and negatives associated with state ownership, there will be a recommendation in the report.  “As part of our work we will be interviewing a vast number of stakeholders,” he said.  Rose said that while the Permanent Fund had the latitude to make a limited investment in such a project, it would be a decision for the board  (Note: Rose is former Executive Director of the Alaska Permanent Fund, now is in private practice as a professional fund manager.  -dh).  Member Mike Navarre said that, “If a pipeline is relatively risk-free, why wouldn’t we invest?  While we are looking at a relatively low rate of return, maybe it would be sufficient for State fund investment.”  Rose pointed out that another way the State could be involved would be by purchasing equity directly from pipeline owners.  Garner repeated his earlier reference to project risks.  Garner pointed out that this project would have political and environmental issues, like other projects, but that this project’s scale makes it different from projects built in more confined areas.  Corbus asked if the study would look into possible participation by a tax-exempt ‘authority’ of the State.  Garner affirmed.  Corbus then reviewed the mission of the committee in light of deadlines discussed above.  He suggested that while the committee would not have definitive answers on all issues by November, perhaps it should produce a matrix illustrating the process and options for use by the full Council.  Navarre added that, “We should identify a process for evaluation since the committee work will be completed before this (i.e. Garner’s) report is submitted.”  Rasmuson concurred, stating that pipeline ownership issues would be before the Legislature for at least the next session or two. Rose noted that part of the process should be to identify the variables.  On a related subject, Navarre said the State should clearly identify any pitfalls involved in any tax changes.  “My main interest,” he said, “has always been looking out for the State’s interest.”  Rose and other members concurred with the Chairman’s suggestion that the committee provide the Council with a matrix.

Revenue Commissioner Condon was then asked to address tax structure issues.  “Oil is a distinctive substance”, he said, “and has particular qualities…,” which make it subject to tracing.  “Gas is much more fungible,” he said, pointing out that it is a mixture of molecules which, “…you can put in one day and take it out the same day in a different part of the country….”    He pointed out that while he was confident the State could develop an appropriate accounting system, the complexity of gas transmission would impact both tax and royalty calculations.  He then introduced State consultant, Pedro Van Meurs (via teleconference) as “…a private consultant in the business of advising governments in the area of oil and gas investments and fiscal systems and their competitiveness in the world market…, (and, who) did an extensive study on fiscal systems in place and how an Alaska LNG system could compete….”   Rose asked if Van Meurs would be doing a more current economic study on LNG.  Condon said that wasn’t the current plan, and that if there were to be an interest it could be pursued though if the Highway project is chosen there wouldn’t be a need.  Member Jack Roderick asked if Condon was satisfied with Cambridge Energy’s studies (See previous council reports).  Condon pointed out that though the study was completed almost a year ago and much has happened since, “…I am very satisfied with it.”  Corbus, asked, “do you think the present tax structure is progressive or regressive and why…?”  Van Meurs said, “When we were doing the work for possible LNG exports to East Asia…at that time we concluded it was not that suitable a system if you wanted to do relatively high risk projects.  The fiscal system is what you call regressive.”    He said it results in a situation in a ‘thin margin’ project where the burden becomes disproportionately high, because royalties are gross revenues paid, no matter the profitability…same with severance taxes.  “Of course,” he said, “property taxes, relate to the cost…so, the higher the cost, the higher the tax…,” regardless of profitability.  He said, “If you take all of that into account, the Alaska tax system relating to oil or gas is regressive…the thinner the margin, the heavier the government burden….  It hampers big large scale projects.”  Representative Ethan Berkowitz asked if Van Meurs could identify a country or state that has a model tax structure.  Van Meurs replied that Alaska is not alone in having a regressive fiscal system. There are similar regressive systems in the lower 48 and Alberta, Bolivia, Peru and Argentina.  However there are many countries, which in order to promote diverse and high cost projects taxes have been restructured so as to not be regressive.   “For example,” he said, “Norway has very high cost oil fields and has developed a system that when the profit margin is thin the burden of government is less.  Brazil has had a successful offshore bidding round that has progressive elements.  Alberta has done it with the oil sands projects.   So these governments have modified their systems to be more oriented to profit.”  He said that countries had created progressive tax structures and are successful with such systems if there are conditions which justify it.  Governments implement such systems when they believe they should be sensitive to lower profits, he counseled.  Roderick asked if a tax on profits is difficult to administer.  Van Meurs replied that countries, “… like royalties because relatively speaking royalties are easy to administer.”  As one knows the price of production, a percentage royalty is relatively easy to administer.  Profit based systems, progressive tax structures, he said, are more involved system involving cost verification and price verification and requires a more skillful administration which sometimes results in disputes.  On incentives, Van Meurs said it is possible to develop a more generic system, a system wherein royalties, severance and property taxes remove some of the burden and make the system more progress.  And, he said, such a system can reduce the risk on the pipeline, “…thereby enhancing the chance that such a project can come about.”  If the project made a bigger profit the state would make more, and if it made less the state would get less. It would redistribute the risk and thereby make it more attractive, he said.

Roderick asked if the tax regime changed when one works with the producers as opposed to the owners of the gas pipeline.  Van Meurs said that if the parties are separate each party has its own tax system to observe, but that the total project doesn’t occur unless the entire package makes sense for investors.  Corbus recalled that the latest information he had received from Van Meurs was the 1997 LNG project report.  “We are looking at highway routing”, he said.  “In your 1997 study you had recommendations for improving the tax structure.”  He asked if those would apply to the highway project.  Van Meurs said that the earlier recommendations were based on the economics of an LNG project selling large volumes of gas to East Asia.  The highway project is also a large project, he said, transporting large volumes of gas with a large risks and, “that some of the conclusions in our study would apply.  “Of course,” he qualified, “the risks, prices, and marketing opportunities are different.  Some of the logic of making government revenues on the back end instead of the front end may be applicable, he said.

Corbus asked about the 20 mil ad valorem (i.e. property) tax , applied during the construction phase wherein there are no revenues.  “It is quite burdensome”, he said, “but that is when the municipalities need the revenues most.  How do other governments handle this situation?”  Van Meurs said that property taxes are typically North American taxes; other governments do not typically have these taxes…and even in North America relative few governments have property taxes as high as 20 mils.  Van Meurs agreed that property tax, “… is a very burdensome tax…,” but he went on to point out that in other areas local governments are often supported by the larger jurisdiction which, in turn, levies taxes.   Roderick asked about the effect of partial state ownership of a pipeline on taxation of the pipeline.  Van Meurs said that while there are various options for state ownership, he didn’t think it would change the overall equation. 


Jerry Hass (Photo), Professor of Finance at the Cornell School of Business, briefed the committee on the Trans-Alaska Pipeline, tariff and profitability issues.  He reviewed the history of oil pipeline tariff regulation, Trans-Alaska Pipeline System (TAPS) settlement methodology, TAPS profitability and gas pipeline regulatory methodologies.  He said the FERC Williams II ruling for oil pipelines, ‘…is to this day the operative way of regulating the pipelines.”    Looking back, he said, “…the TAPS investment was good for the companies: not generous, but not stingy.” 

As to the gas pipeline, Hass said the FERC and NEB are “likely” to use original cost, and reasonable rate as a regulatory standard.  He said FERC “…over the last 2 decades has shown a willingness to let the parties negotiate a reasonable agreement, but if any party doesn’t agree, the ‘rock hard’ formula might be used.”   He emphasized the importance of understanding ownership categories.  "If a partnership and partners are corporations they can immediately take any tax credits or tax losses generated during construction or the early years of operations against taxable income from other activities, he observed, but if a pipeline is a stand alone corporation, any tax credits or losses would have to be carried forward to future years." 

Michael Hurley represented the Alaska Gas Producers Pipeline Team.  He said the producers would like to initiate a dialogue with the state on fiscal certainty.   He pointed out that Taps tariff issues covered by Jerry Hass just discussed is a part of history the companies don’t care to repeat.  “Our goal”, he said, “is to have clarity and certainty as to what the rules will be for taxes and royalties, and hope that we can have that discussion before the legislature meets.”  He said the companies had no specific proposal but had initiated dialog with the state, realized it was a time consuming process, but hoped that if it achieved visibility on decision makers’ ‘radar screens’, the issues could be resolved ahead of time.  Member Rose asked if the producers could assist the state in reducing volatility by assisting it with such techniques as ‘hedging’.  Member Rasmuson agreed that such an approach was reasonable.  Hurley responded that it could be considered but that a pitfall could be that state officials might be concerned with ‘how’ the companies would hedge.  “Realistically”, he said, we are looking at valuation clarity for severance taxes and royalties.”  These are relatively easy to track with oil production, he said.  “But with a gas market it is much more difficult to keep track of the molecules going in different directions.”  He said state departments will have to become familiar with markets.  He added that there is a distinction between producers who pay royalties and taxes as opposed to the pipeline company transporting the gas.  He concluded that pipeline ad valorem (i.e. property) taxes tend to be regressive and front-end loaded.  State and local governments begin to collect these taxes long before the first gas flows and begins generating revenue.  “We don’t have any specific proposals in mind,” he said, but indicated it was an area that the state and companies could work on.  He also noted the difficulty which would be posed should the state request royalty gas ‘in value’, causing the companies to arrange for long term sales, if the state were then to come back and ask for the royalty volumes to be paid ‘in kind’.    

(While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record.  -dh...Draft Revision: 8-20-01, 1015 ADT.)


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