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Sarah Palin is much in the news, but not necessarily for what she should be.

As Governor of Alaska, she has only passed two major pieces of legislation, but one of them is a whopper.

It is called the Alaska Gasline Inducement Act (AGIA). The purpose of this act was to attract bidders for the building of a  new gas pipeline.  Two days before she was nominated by McCain, she  signed a license for one of them, called Transcanada.

Under the AGIA, there was at least one proposal which merits careful consideration. Alaska will have to pay treble damages to Transcanada if it advances any other pipeline proposal. This is built into her legislation. In view of the status of the pipeline and competing proposals, this has the possibility of real disaster, and speaks to her ability to deal with complex issues.

She has also supported and won up to Five Hundred Million Dollars in contributions by the state of Alaska to the Transcanada project, for its development. The major competing proposal did not require this.  Also, a US governmental loan guarantee of Eighteen Billion Dollars may be required, for a project which may not even produce gas deliveries to the US, as the  end delivery point is in Canada
But the treble damages is the worst.

Ms. Palin as governor is already chair of an interstate panel of oil producing states, and her interest in that issue seems substantial. She also served a term on the Alaska Conservation Commission which apparently deals not with species but with extraction of oil, gas and other natural resources in Alaska. There have long been questions about North Shore and other Alaskan oil production since much of it has been sold not to the US, but to Japan and other foreign users.

She has also said that in this matter, she is concerned with Alaskans expressly. I see nothing at all in the Alaskan newspapers or the legislative discussions about the end users of the gas passing through the pipe necessarily being in the Lower 48.  The  AK domestic cost of fuel and natural gas and its availability are of paramount interest to her. At least one spine off the proposed pipeline is identified and it goes through her neighborhood  north of Anchorage to Anchorage, with a possible further pipeline to Fairbanks. A number of other spines for domestic suppy are under discussion. But these appear to be in all of the proposals.

In the present instance, there is one major competing project sponsored by BP and Conoco, which is going forward outside the AGIA structure and does not require the $500 million Alaska contribution to go forward. Alaska also has a number of smaller fields and producers. The BP Conoco proposal was deemed not in compliance with AGIA

AGIA does not in fact require the pipeline to be built, but only moves through the point where FERC, a Federal agency issues a license. Nor does the $500 million contribution.  The aggregate estimated budget for the pipeline is $25 Billion.The competing pipeline is already in the FERC process and has been for some time, although it was proposed while the AGIA licensing competition was underway.

One of the problems with the project has to do with the ability of the pipeline operator to get producers to sign up and commit to move X amount of gas through the pipe for Y number of years; at present they have no such commitments. One of the issues in getting such commitments is apparently the need for a fixed tax or tariff rate charged to the producers for removal of the gas in question, and the Palin administration has been intentionally vague about any admustments which they might make or in committing to any particular rate, so much so that Transamerica itself has speculated that it cannot confirm volume through the line sufficient to make it economical for producers to use the line without that information. Palin herself rejected in a letter to Conoco the notion that such clarity was needed, and based her rejection of the Conoco Denali line in part  on Conoco's demand for that clarity.

The provision which concerns me in this post is Ms. Palin's inclusion in her enabling legislation of the treble damage provisions. There is no clarity in the press there about exctly  how much state action would constitute advancing another proposal, and almost a curious notion that the Transcanada license may encourage other pipeline projects, treble damages be hanged. But since it is a penalty provision which would give a huge return on investment to Transcanada, three times its investment, the lack of clarity on the matter is not just worrisome, but almost petrifying.

In effect it is a reward to Transcanada for doing the proposal at all. It is easy to foresee that any  afffirmative state action at all which might be necessary to forward the Conoco pipeline  or another project not identified could  be argued to constitute advancing that project. An environmental review. A permit grant for allowing the line to go here, or to build roads, or to allow geological work. It virtually requires the state to use all of its discretion, in advance, to thwart any other project, wilfully and in bad faith, else pay the treble damages. A hunt for such state advancement is virtually guaranteed if transcanada elects for some reason to withdraw without building the pipeline, or in renegotiation of the provisions of the license later, also foreseeable.

She has placed the state in a position that not only is it investing $500 million in a private project, which could totally be lost, but also to treble damages if any other project does.

Now we get to the loan guarantees. There is always seen on this project the possibility that at various points, there will be insufficient users of the pipeline whose tariffs will service the debt incurred to build it. These loan guarantees appear intended to provide security to lenders in those periods or if the project is not even built.

In this, she is apparently counting on the great abilities of the AK Congressional delegation to get this through. there are reports in the petroleum press that they feel they may have to wait for a new administration to have this guarantee considered. HRC and O said No, and Ted Stevens reportely said something in the "Don't hold your breath" line.

So, what we have here is a VP candidate who in her prior Gubernatorial life has put her state at substantial risk in order to get a pipeline built to her specifications and has agreed to have her state pay  most of the upfront costs, and treble damages to the license holder if any other pipeline project goes forward and if the state in any way advanced that other project. And the lifeline for this project, before she even signed it on Wednesday last,  is a huge Federal loan guarantee. And there is in this no promise that any of the gas will ever get to the Lower 48 that I can find.

In view of her love for her state, I can certainly imagine what would happen to this if she became VP. I do wonder if her concern for the rest of the 49 states plus territories and possessions would have equal weight with AK in her concerns. Certainy ANWR and any and all other federal lands in AK  will be full of driling holes.  

I also have the additional concern as to her relationship to and independence from Oil and Gas industry lobbyists and figures, as this AGIA legislation was virtually the first thing she put forward in her very first term, and one of only two major bills that got through her legislature, and prior acquisition of sophistication in the issue  necessary to do all this is not suggested by her prior resume. I am concerned that, as with McCain, her relationship to lobbyists may be much too close and her claim as an ethical reformer and enemy of pork and lobbyists as vaporous as the gas going through this pipe.  

Originally posted to Christy1947 on Sun Aug 31, 2008 at 01:47 PM PDT.

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