AGIA an issue in Juneau

House Bill 142 says line uneconomic without firm commitments by summer
Kristen Nelson Petroleum News



Is it time to declare AGIA dead? That’s the question some Alaska legislators are asking.
The TransCanada-ExxonMobil Alaska Pipeline Project, one of two projects to move Alaska North Slope gas to market, was licensed by the state under the Alaska Gasline Inducement Act.
Tony Palmer, vice president of Alaska development for TransCanada, said after the close of the July 30 open season last year for the Alaska Pipeline Project that “we have received multiple bids from major industry players and others for significant volumes.”
The next step, he said, is to work with potential customers to resolve conditions on the bids: “That’s what we’ll be doing over the next several months.”
Palmer told Petroleum News just prior to the close of the open season that the goal was to have precedent agreements signed by the end of the year. If conditions are simpler, it may take less time, he said.
On the other hand, “If we get many complex conditions we may not be able to achieve it in 100 business days,” extending beyond the end of the year when precedent agreements could be signed, Palmer said.
Because year-end has come and gone without signed precedent agreements, some members of Alaska’s Legislature are now concerned that the AGIA-licensed project is a failure and they want to legislate a way for the state to get out of its contract.
State required continuation
Under AGIA, the state required that in the event of a failed initial open season — no bidders for pipeline capacity or not enough bidders — the licensee would be committed to continue through certification by the Federal Energy Regulatory Commission.
That was one of the must-haves in AGIA, which in return provided a number of incentives, including $500 million in state matching funds for work on the project through FERC certification.
Palmer told legislators during the 2007 debate over AGIA that TransCanada preferred — in the case of a failed initial open season — to focus on obtaining customers “as opposed to doing the engineering and regulatory and legal work to capture a FERC certificate.”
Palmer said that even though the state offered a higher cost-share match after an open season, that TransCanada would prefer not to pursue the certificate “until we had customers or credit.” Told that fellow Canadian pipeline company Enbridge had told legislators “no producers, no pipeline,” Palmer said in his view it is “no customers, no credit, no pipeline.”
The Legislature passed AGIA in 2007, and despite its concerns over the FERC certification requirement, TransCanada submitted an AGIA application and received the AGIA license in 2008.
Both the Alaska Pipeline Project and the competing BP-ConocoPhillips Denali project held open seasons last year. Both reported receiving bids; neither project has completed negotiating precedent agreements.
HB 142 introduced
Which brings us to the new session of the Alaska Legislature, and concerns by some House Republicans that since precedent agreements have not been signed the AGIA-licensed project may not be economic and may not result in a pipeline, while the state is committed to reimbursing TransCanada up to $500 million.
The sponsors of House Bill 142, introduced Feb. 4, say the bill would provide an exit strategy for the state if there are insufficient firm transportation commitments resulting from the initial open season.
House Speaker Mike Chenault, R-Kenai, speaking at a Feb. 7 press conference, said the Legislature is in the dark.
“We’ve heard from TransCanada after the open season that gas was bid,” but don’t know if there is enough gas for a pipeline, he said.
Chenault also said “our perception of natural gas supplies in the Lower 48 at the time of the AGIA process are considerably different than what they are today,” with shale gas production growing at a rapid rate.
Rep. Mike Hawker, R-Anchorage, said the goal of the legislation is “to create a sense of urgency about moving forward with the AGIA process.” That urgency was “not mandated in the original AGIA legislation and … I think it was an oversight in the original AGIA legislation,” he said.
The bill creates “a rebuttable presumption that the project licensed under the Alaska Gasline Inducement Act is uneconomic because of insufficient firm transportation commitments during the first open season,” gives TransCanada until July 15 to disclose that it received firm transportation commitments sufficient to support construction of the project, and requires the commissioners of Natural Resources and Revenue to notify the Legislature before Aug. 1 whether firm transportation commitments were disclosed to them prior to July 15.
The commissioners would have until Aug. 15 to submit a report to the Legislature that there are sufficient firm transportation commitments for the project to go forward, or that the project has credit support sufficient to finance construction and predicted costs of transportation “would result in a producer rate of return that is not below the rate typically accepted by a prudent oil and gas exploration and production company for incremental upstream investment that is required to produce and deliver gas to the project.”
TransCanada, administration, respond
Palmer told Petroleum News Feb. 8 that TransCanada “is confident that we have done everything we can do to advance the project and meet the obligations we have to the State of Alaska; and to date the State of Alaska has met their obligations to us as the licensee.”
He said he wouldn’t prejudge what might happen with the bill, but will “participate as requested and we’ll see how that plays out.”
The Associated Press is reporting that the administration plans a legal review of the bill.
Deputy Commissioner of DNR Joe Balash told AP there are concerns about “impacts and potential exposure” from the measure.
Larry Persily, federal coordinator for Alaska Natural Gas Transportation Projects, told Petroleum News in a Feb. 8 e-mail: “I understand Alaskans’ frustrations with the pace of the gas pipeline project and I know people want to see some positive news about the open seasons. I only ask that people not confuse the debate over AGIA with the project itself. The pipeline is possible, the project would be good for the state and the nation, and the federal government is ready to work with whichever company or companies are willing to risk the tens of billions of dollars needed to finance the pipeline.”
Legislative reactions
Members of the Senate Bipartisan Working Group had mixed reactions to the bill.
Senate President Gary Stevens, R-Kodiak, said in a Feb. 8 press availability there were some concerns in the Senate about whether the state has given the process enough time, and said he didn’t “anticipate a similar bill on the Senate side, but we’ll see how things progress on the House side.”
Sen. Bert Stedman, R-Sitka, said he thinks discussion is timely, and said he’s “concerned that we could be tied up in the contractual obligations for years into the future.”
Sen. Tom Wagoner, R-Kenai, said he thinks the Legislature needs to wait to see the results from the open season “and then sort it out at that time.”
House Democrats, speaking at House Minority press availability Feb. 8, were opposed.
Minority Leader Beth Kerttula, D-Juneau, said she thinks “the State of Alaska should be taking down barriers to entry instead of putting them up and I think that unfortunately what the new AGIA bill would do is break our deal to get a gas line.” She said she thinks the bill would produce a lawsuit by “breaking our deal and setting an artificial deadline.”
The bill has been referred to only one committee, House Finance, and Kerttula said she intended to talk to Chenault about that.
Rep. Scott Kawasaki, D-Fairbanks, a member of House Resources, said “certainly AGIA and the whole concept of AGIA is a Resources issue” and should be heard by that committee.

Gulf Spill: The Blame

May 19, 2010: While politicians and environmental groups step up to posture in the face of the Deep Water Horizon disaster, the company who is taking the brunt of the criticism has not been afforded the right to a fair hearing of facts in the press.

Since the well blew in the Gulf of Mexico on April 20th, several things have happened that warrant a clear and concise explanation.

In what stands to be one of the biggest oil spills in the history of the United States, the cause of the spill now appears to be an unauthorized modification of the blow out prevention (BOP) valve.


The Blame

BP's Deep Water Horizon oil rig exploded and sank off the cost of Louisiana last month. Eleven rig workers are missing, which was operated by Swiss-based Transocean Ltd, the largest independent driller in the world.

Meanwhile, the BOP failed to stop the flow of oil as it should have after the explosion and allowed oil to pour into the Gulf of Mexico. Fingers are being pointed at BP, even though Transocean was the sub-contractor.

Eventually, BP will be exonerated. But first we will all have to play a game of cover our asses.

From the subcontractor who reportedly modified the BOP without the knowledge or permission of BP, to the government regulators who okayed the modified BOP, to the Obama administration who wants to look tough on BP even thought they had no culpability, everyone is running for cover.

After the BOP was installed, the modifications made after the fact are assumed to have prevented the part from operating properly.

These modifications were discovered by remote operated vehicles whose pictures transmitted to engineers trying to find out why the BOP didn't activate, showed the part had been altered.

Government Response

Meanwhile, the Federal Government responded by splitting up the regulating and revenue collecting functions of the Minerals Management Agency, to as President Obama described, break up the cozy relationship between regulators and the oil industry.

However, the action to split up the functions draws attention to just who was responsible for permitting the BOP that failed to work. Could it have been that an MMS inspector didn't properly follow through with the BOP test monitoring?



BP's Safety Record

Much has been written since the well blew four weeks ago about BP's safety record. But that says nothing about the company today and the focus on safety they have made the last two years.

While many press accounts recall the explosion at BP's Texas City refinery in 2005, and the spill at Prudhoe Bay a year later, those incidents occurred before BP's current CEO Tony Hayward assumed control.

Since the spill, Hayward has been a visible point man for BP. He wasted no time in appearing on major network news shows to describe the situation on the ground. He has mobilized 2,500 workers to the site, including several from Anchorage, and he has accepted full responsibility for the disaster.

This shouldn't be surprising. After all it was Hayward, who in 2005 won accolades from BP employees for speaking out against the way the company was handling the Texas City disaster, criticizing his bosses for "a leadership style that is too directive and doesn't listen sufficiently well."

The Politics

The politics are bare knuckle.

The spill has given fodder to environmentalist to once again raise a ruckus about offshore oil & gas drilling. Congressmen, one right after another, attempting to look tough, are demanding answers from BP they already have received. And the White House continues to posture on the real issue which is; energy supplies come at a risk.

But the fact is the Gulf of Mexico accounts for almost a third of America's oil production and has been where most of the new finds have been for oil companies.

Furthermore, before the April 20th disaster, there hadn't been a leak from an offshore well in 40 years.

As the Economist recently opined, "If Americans do not want to hand more money and clout to the likes of Iran, Russia and Venezuela, the argument runs, they should not curb offshore drilling."

The impacts have reached Alaska. The spill has set off another round of opposition to offshore drilling in Alaska and age old worries about a spill in the Arctic conditions. But these concerns are unfounded.

Currently, as a result of the 1989 Exxon Valdez spill, Alaska has the toughest regulations in the world. Companies like Shell Oil who are exploring off Alaska's shores are required to abide by and held to a much higher standard of prevention and response then anywhere on the globe.

The more and more you hear of the Deep Water Horizon tragedy the more you'll learn that it was a careless contractor who set the stage for the disaster. And as I said, at the end of the day BP will be exonerated in my opinion.

Let's hope for the future of our nation's energy security we don't use one bad incident in 40 years as an excuse to stop offshore drilling.

And let's hope we get bp: beyond posturing.

Andrew Halcro's blog

A subcontractor Transocean reportedly modified the BOP without the knowledge or permission of BP

Exclusive from Andrew Halcro

In what stands to be one of the biggest oil spills in the history of the United States, the possible cause of the spill now appears to be an unauthorized modification of the blow out prevention (BOP) valve.

Oil rig explosionBP's Deep Water Horizon oil rig exploded and sank off the cost of Louisiana last week. Eleven rig workers are missing, which was operated by Swiss-based Transocean Ltd, the largest independent driller in the world.

A subcontractor Transocean reportedly modified the BOP without the knowledge or permission of BP, to the government regulators who okayed the modified BOP, to the Obama administration who wants to look tough on BP even thought the company had no culpability, everyone but BP is running for cover.

New evidence shows BP will eventually be exonerated.



Read More

This document is also packed full of information concerning the blast aa well as pictures of the Horizon

Alaska's Natural Gas Pipeline: A Reality Check

Exxon & TransCanada: Back to the Future

Exxon & TransCanada: Back to the Future
Welcome to the strange days of pipeline politics that provides a twist to the old saying, "there are no permanent friends only permanent interests."


In April of 2007, I sat in an airport conference room with Department of Revenue Commissioner Tom Irwin and Deputy Commissioner Marty Rutherford so they could explain their AGIA concept.

During the two hour sit down, I asked Commissioner Irwin why he didn't believe Governor Sarah Palin was capable of sitting down and negotiating with the producers over pipeline terms. After all, the governor would be the perfect ambassador coming to negotiate armed with a reservoir of goodwill and trust from fellow Alaskans and the desire to strike a deal.

Irwin's face went blank almost as if I had said something unkind about his mother.

"Do you know how Exxon negotiates," Irwin asked rhetorically. They're the worst, they squeeze and squeeze, they keep asking for more and more he said. When they don't get what they want, they'll get up and walk away from the table. Then, in order to dramatize his point, Irwin abruptly abruptly stood up from his chair and walked away from the conference table thus punctuating the message.

Across the table, Lt. Governor Sean Parnell just shook his head and said yeah they're tough.


It was clear from my two hour meeting that whatever dynamic existed between Irwin and Exxon, his dislike for the Houston based oil giant was personal.

It was also clear that Irwin's AGIA was specifically designed to avoid face to face negotiations with companies like Exxon.


The ongoing war between Exxon and the Palin administration seemed to escalate over the last year with tough exchanges regarding both AGIA and the on going litigation surrounding Exxon's Point Thomson development.

In April of 2008, Commissioner Irwin rejected Exxon's proposal to bring Point Thomson under development saying he couldn't trust Exxon while accusing them of misleading Alaskans about their Point Thomson intentions.


The intense dislike held by the Palin administration for Exxon was put on public display when emails were released as part of a legal filing in the Point Thomson court case. Internal DNR emails revealed state oil & gas executives were slow rolling Exxon's permitting requests while openly mocking the company's commitment to develop Point Thomson. Governor Sarah Palin also criticized Exxon, saying the company shouldn't let the door hit them on their way out.


Meanwhile, Exxon was critical of Palin's gas pipeline plan, AGIA.


During the two years of legislative testimony on AGIA, Exxon repeatedly warned the Palin administration that AGIA would not work. "AGIA does not provide for a commercially viable project," Exxon's Marty Massey testified over and over again during hearings on AGIA.

Massey along with other producers all testified that those hurdles to development included fiscal certainty, unrealistic terms regarding rolled in rates and ownership issues concerning the pipeline itself. The concerns voiced by Exxon and the other producers were the same reasons why none of the producers bid on AGIA to begin with.

Last week the news broke that Exxon had joined TransCanada while declaring that AGIA was the way to the promised pipeline land. Some interpreted the announcement as much to do about nothing while the Palin administration referred to it as an historic event.


At the press conference announcing the new partnership, DNR Commissioner Irwin spoked glowingly about Exxon's professionalism and then appeared is if he might just reach out and give Exxon's Massey a bear hug. Meanwhile, the governor was issuing a press statement lauding Exxon and saying how this proves AGIA is working.

Exxon's Massey then stepped to the microphone to announce the partnership with TransCanada and then proclaimed that AGIA was the best way to get a successful natural gas pipeline project in their mind.

So what happened to the distrust that the Palin administration held for Exxon and the economic concerns that Exxon held for the Palin administration's AGIA?

According to an Anchorage lawmaker, during a briefing on the new partnership an Exxon representative was asked if their new found support for AGIA represented a retraction of their legislative testimony that AGIA is not a commercially viable approach to getting a pipeline built. The response from the company representative was that Exxon stood behind their legislative testimony 100%.

A twist if you'll allow me;

there are no permanent enemies, only permanent interests.



Permanent Interests


For Exxon this is a brilliant business move and one that should be understood in complete context of protecting their permanent interests.

During Exxon's press conference, company executives stressed one of their permanent interest quite clearly; the state must negotiate a fiscal framework with gas shippers so Exxon can accurately evaluate the projects economics. An Exxon spokesman said during the news conference that "predictable and durable" tax terms with the state will have to be dealt with before Exxon becomes a full participant.

During the State's press conference, Palin's gas line team stressed their permanent interest; AGIA was working and the state's pipeline mandates were still in place with the new partnership between Exxon and TransCanada. Even the governor's press release threw a little AGIA bone to the faithful, “Alaskans will also be pleased to know that TransCanada’s obligations to the state as the AGIA licensee are 100 percent intact and unaltered by this alignment with ExxonMobil.”


AGIA was specifically created by the Palin administration to lock producers out of pipeline ownership while avoiding ever having to negotiate fiscal terms.

After all, it was DNR's Irwin and his Deputy Rutherford who famously said that the state was “outclassed” at the negotiating table and that was why the AGIA mandates were so critical.


However Exxon's reiteration that fiscal terms must be agreed upon to move the project forward is a clear sign that their engagement with TransCanada is simply a new approach to getting back to where Frank Murkowski left us four years ago; needing to negotiate a fiscal framework with the companies that will assume the risk of building the largest oil & gas project in the world.


Before last weeks announcement of a joint cooperative agreement between Exxon and TransCanada, the AGIA process was beginning to draw criticism. Concerns had been growing from various corners of the political landscape about the slow pace of work and the overall attractiveness of the project with stagnant natural gas prices and increasing reports of a glut of natural gas in the lower 48.

Exxon comes along at a time when TransCanada needed a friend with deep pockets and the Palin administration needed some positive news to tell about AGIA.


With Exxon joining TransCanada they now have a seat at the table and can basically control the ground game preparing for scheduled open season in July of 2010. The agreement between the two companies as introduced last week was fairly vague but the intent was clear.

Exxon will control the work behind the scenes as a subcontractor managing the project design and costing while TransCanada wears the public face of the AGIA license holder.

In 2000, Exxon was partners with BP and Conoco in a pipeline working group when they spent roughly $120 million studying costs for the natural gas pipeline. Industry insiders have said that TransCanada has been actively pursuing the producers with an offer to buy the 2000 study materials.

Exxon's contribution to TransCanada will more than likely include dusting off these studies, updating the information and then selling it to TransCanada. The irony is that according to AGIA, if this represents a qualified expense, the state could end up paying for 50% of the cost.


According to their agreement, “TransCanada can progress the project independently if it so elects, using all jointly developed assets/information.” This means that when open season fail to attract firm gas commitments next summer, it will be TransCanada who will then be forced to carry on to FERC permitting according to their AGIA requirements.


You might remember two years ago when DNR Commissioner Irwin told a room full of lawmakers that the strategy was to have a failed open season for AGIA, so the administration could use public, government and stockholder pressure to force Exxon, BP and Conoco into playing ball.

But now all of the producers are in the game, all slugging away with their play. This means there is nobody left on the sidewalk for the Palin administration to blame or threaten when TransCanada's open season fails next July.

If TransCanada's open season fails it won't be because Exxon didn't play, it will be because the state's AGIA mandates don't provide for a commercially viable project.

If Denali's open season fails it won't be because BP and ConocoPhillips didn't play, it will be because the state's AGIA mandates don't provide for a commercially viable project.

And while many of you might say, "Whoa Andrew, Denali is outside of AGIA so there will be no mandates," lest you forget that one of AGIA's mandates will prohibit the state from negotiating with a competing project (Denali) at the risk of having to pay TransCanada treble damages.

Even ignoring the fact that all three producers will have to all be in agreement in order to greenlight the $30 plus billion project, if Exxon did step out and commit gas to the AGIA based project on their own, they'd tag on a massive contingency; the state must negotiate viable commercial terms before project commencement.

The same contingency will accompany any gas commitments to the Denali pipeline project from BP and Conoco as well.

The problem for the Palin administration is that adopting what the producers need to commit gas and build the pipeline would mean gutting AGIA, thus rendering the entire exercise meaningless.

Meanwhile, with a new partnership with TransCanada and a key role in managing design and engineering work, Exxon will be able to walk away with a much clearer understanding of just how much the AGIA mandates will impact their bottom line while at the same time gaining a higher comfort level with the project cost estimates since they had a hand in developing them.


Value Added


Since the day TransCanada has been announced as the only AGIA applicant that made it through the process, producers have been asked repeatedly if they envisioned a time when they might join up with the Canadian pipeline building company under AGIA.


“We're interested in any partner who can bring value to the project,” has been the standard industry reply. The problem for TransCanada is they don't bring any value to the project.

TransCanada has world class pipeline building skills but so do the producers. But more importantly, the producers have what TransCanada does not; deep pockets and natural gas supplies. In fact TransCanada offers little more than a shaky claim to decade old Canadian permits.

In an interview on the Dan Fagan Radio Show, Revenue Commissioner Pat Galvin said that Exxon was going to participate via subcontractor status by taking the lead role in designing and engineering the gas treatment plant. This isn't a surprise, because the gas treatment plant is traditionally oil field equipment, not pipeline equipment.

Just one bit of irony.

Back in February, Governor Palin was informed by a reporter at the beginning of a press conference that Denali had just announced awarding a contract to a local engineering firm to design and engineer the gas treatment plant. Big deal Palin said, it's just a contract to design not a contract to build. Four months later, TransCanada announces their subcontractor and the response from Palin is dramatically different.

But in this partnershop, TransCanada offers Exxon some excellent short term value. TransCanada provides Exxon with a lane to drive in during the journey towards AGIA's scheduled open season.

With BP and Conoco driving their Denali project ahead, Exxon needed a seat at the wheel and TransCanada desperately needed a driver.

With Exxon's new partnership based on their assets and management policies, even though on the outside it's being packaged as TransCanada is still in command, the tiger is actually driving the bus.

Not to mention the fact that Exxon is now in a position to get reimbursed for half of the costs of its pipeline design and engineering studies under the terms of AGIA.

And while Exxon scores positive press for siding with the state and progressing the pipeline project, they have left themselves plenty of room to jump off the AGIA train before the crash.

Looking ahead, after the two failed open seasons in 2010, the next move in the quest for a natural gas pipeline will land Alaska and the producers right back at square one where Frank Murkowski left us four years ago; negotiating a fiscal framework with those that will assume the risk of building the largest oil & gas project in the world.

And it will have only taken us four years to come full circle and make it right back to where we began.

Obama's Oil & Gas Tax Plan: Alaska's precarious position

(3/03/09) On Saturday, President Barack Obama detailed his fy2011 federal budget proposal by saying he would eliminate $30 billion in oil & gas company tax credits and use the money to pay for government services.

Lets face it; oil & gas companies are an easy target with the profits they've been reporting. But unlike other industries that have decimated wealth such as insurance (think AIG) and finance (think Lehman Brothers), the profits from oil and gas companies have actually helped buffer the dramatic liquidation of wealth in Americans retirement accounts.

SEC data on the ownership of U.S. Oil and natural gas companies shows that 70% of the shares of these companies are held by institutional investors (Ak Perm Fund Corp eg.) especially asset management companies, and predominantly on behalf of middle-class American households who on shares through mutual funds, pension funds and retirement accounts.

Individual investors who manage their own portfolios and are not company insiders account for almost 30% of all industry ownership, which again includes significant numbers of middle-cass households holding IRA and other personal retirement accounts.

A recent report on the subject found, “The data strongly suggest that most of those profits go to the industry’s majority shareholders, who are middle-class U.S. Households with mutual fund investments, pension accounts, other personal retirement accounts, and small personal portfolios.”

But still, it's seems politically fashionable to go after one of the only industries in the country that is making a profit.

Seems ironic in a day and age where government is spending hundreds of billions in taxpayer money to bail out failing companies who have managed themselves into the ground.

Today AGI announced the largest single quarter loss in corporate history at $67 billion and what happened? Uncle Sam rushed in with $30 billion in taxpayer money to help them out. I'd wager that if Exxon or BP were to lose that much, Uncle Sam would be as absent as mink stoll at a PETA function.

The problem closer to home for Alaskans is that President Obama's proposed tax changes represent a threat to Alaska's financial life line; oil & gas development on the North Slope.

In November of 2007, Governor Sarah Palin and the Alaska State Legislature increased taxes significantly on the oil & gas industry. The one saving grace for many producers was that in some cases, they could deduct their state taxes from their federal taxes.

President Obama's plan calls for eliminating these credits and if they become law, producers will take their capital and flee to more tax friendly countries who will be begging for investment given the global economic meltdown.

Already there are growing signs of concern on the North Slope.

In January of 2008, the governor put out a press release announcing a major new project on the North Slope:

"Governor Sarah Palin today commended the major investment announced by Italian oil giant Eni. The company will invest $1.45 billion developing the Nikaitchuq oil field. Eni expects to drill 70 wells to recover 180 million barrels of oil."

In December of 2008, Department of Natural Resources Commissioner Tom Irwin, used the Eni project in a column in the Anchorage Daily News to support his contention that activity up on the North Slope was humming along.

"Our commitment to development is further demonstrated through the royalty modification program and has resulted in major activity. Through a cooperative cost- and risk-sharing effort between the state and industry, this world-class field is being developed. Likewise, Italian energy giant Eni has sanctioned some $2 billion in project capital for the development of the Nikiatchuq field, neighboring Oooguruk."

Last week however, Eni notified sub-contractors that it is suspending all work until further notice.

According to one oil company executive, this is a significant loss of jobs.

To add insult to injury, Conoco Phillips announced they were cutting their capital budget in Alaska. Conoco has announced a $12.5 billion capital spending program for 2009, which pencils out to a 20 percent reduction in capital spending in Alaska for the coming year.

Capital spending covers exploration and oil field development costs, which have always been viewed as the marker for determining the economic health on the North Slope.

According to Eric Lidji at the Petroleum News, Conoco earned $2.3 billion in profit on $9.2 billion in revenue in Alaska last year and paid $3.4 billion in non-income taxes. Conoco paid $1.7 billion in non-income taxes in Alaska in 2007.

Conoco paid $33.83 in non-income taxes on each oil-equivalent barrel produced in Alaska last year, up from $15.27 in 2007. The figure is significantly higher than all other areas listed in the report, except for the $50.14 reported for a region marked "other areas." The company paid $4.20 in non-income taxes per barrel in the Lower 48 last year.

The dramatic increase in non-income tax per barrel is due to the state's dramatic increase in productions taxes adopted in 2007.

In fact, the news from the North Slope of late has made one thing perfectly clear; a continued refusal by DNR Commissioner Tom Irwin to delay Point Thomson development even more than he already had, would have caused an even wider spread of pain on Alaska's economy.

The global economic recession will continue to present challenges for Alaska's resource development, but the combination of Alaska's high tax structure and Obama's proposal to end federal tax breaks for producers of domestic sources of oil & gas will have tremendous consequences on Alaska's North Slope development.

Healy Clean Coal: Rewarding cheats and con men

Healy Clean Coal: Rewarding cheats and con men


After twenty years of screwing both the State of Alaska and the US Department of Energy over a clean coal plant that they wanted built in the first place, it looks as if the Palin administration is on the verge of allowing Golden Valley Electric Association to screw the state one more time.

According to sources, the Palin administration is reportedly close to a deal that would have AIDEA, the state's economic development arm, basically give away the $300 million clean coal plant completed in 1999 to GVEA, the very same utility which backed out of paying for the plant and cheated the state out of tens of millions.

Over the last eighteen years, GVEA has used one excuse after another in refusing to accept responsibility and management for a plant that they were hoping to get for free at taxpayers expense. Instead, over the last ten years the plant has been sitting idle, with GVEA putting up roadblocks in front of AIDEA's attempts to utilize the asset.

Finally in November of 2005, the Murkowski administration had enough of GVEA's stalling tactics and filed legal action.

But then along comes Palin and after stacking the board with her cronies, is now proposing to let GVEA be rewarded after screwing the state for the last twenty years, for her own political gain.

Funny, if GVEA were Exxon, something tells me this wouldn't be happening.

Whats worse is when you look at the cast of characters involved in this giveaway of a state asset, you can't help but be alarmed.

Since Governor Palin has come into office she has replaced the head of AIDEA with a fellow Wasilla crony and planted her resident babysitter and former administrative problem child, Ivy Frye, at AIDEA. Inside sources confirm she seldom attends work, preferring to hang out in the Governor’s suite.

But the biggest red flags are those who have something to gain with the GVEA giveaway.

In March, Palin appointed Steve Haagenson as the head of the Alaska Energy Authority and as the State Energy Czar.

So what was Haagenson's prior job?

He was CEO of Golden Valley Electric Association (GVEA).

In his brief stint as State Energy Czar, lawmakers have complained that he has totally botched the renewable energy grant program and has so far failed to deliver the statewide energy plan on December 17 as he promised a week earlier while speaking to the Anchorage Chamber of Commerce.

Sources say the delay in releasing the energy plan was due to criticism about the plan Haagenson described to Chamber members on December 8, wasn't a plan at all, it was simply a menu of options. The delay was necessary in order for AIDEA to rush this giveaway of the coal plant through to try and add substance to a weak energy plan and to provide cheerleading material for Palin's state of the state speech.

Multiple sources confirm that Department of Revenue Commissioner Pat Galvin, who is an AIDEA Board member, and Fairbanks Representative Mike Kelly have engineered a sweetheart deal giving away the HCCP to GVEA.

According to my sources, Kelly has long promised to right this situation and resolve the issue in favor of GVEA.

So what was Kelly's former job before he landed in the legislature?

Like Haagenson, Kelly is a former CEO of Golden Valley Electric Association (GVEA).

HCCP was built by AIDEA for GVEA in a deal when Kelly was CEO of GVEA. The HCCP cost AIDEA $300 million to construct and after years of GVEA refusing to accept the plant or pay for it, it has been written down on the AIDEA books in 2002 to some calculation around $180 million. In the 2005 lawsuit filed under the Murkowski administration, the state was suing GVEA for $167 million in damages.

So because Kelly was CEO during the time the coal plant was being built for GVEA, he has had this albatross hanging around his neck for the last decade. It has long been rumored that Kelly and the GVEA Board are still working to save face over a deal gone wrong years ago with the state now picking up the tab.

Galvin and Kelly’s deal basically gives HCCP to GVEA. Cost will be $50 million, with 100% long term financing at 5% interest by AIDEA. AIDEA immediately pays $45 million in “restart” costs. That means the state nets out $5 million while GVEA gets a plant that will provide a profitable long term revenue stream.

Documents obtained by a legislator explicitly confirm reports from an outside source that Galvin and Kelly have told the GVEA board and management that the deal must be done “before Mike Chenault takes over as Speaker of the House," on January 19,2009.

Why the rush to get this deal done so fast?

One reason is that Chenault represents the Kenai Peninsula where Homer Electric Association already has an offer on the table of $85 million to purchase the plant from AIDEA.

Sources outside the legislature have alleged that Rep/ Kelly used his position as Budget Subcommittee Chairman for DCCED with administrative authority over AIDEA to obtain confidential information about the HEC offer that he took to an executive session of the GVEA Board.

There are rumors that Kelly counseled GVEA Board against negotiating or agreeing to any HCCP settlement plan until he derailed the HEC proposal and put the fix in with the administration who would do his bidding.

The second reason for urgency is the administration wants a deal closed by the State of the State which is scheduled to be given by Governor Palin on January 20.

This will give her something to offer as an accomplishment since her administration has done very little in the last twelve months.

AGIA, ethics reform, increasing oil taxes...she claimed credit for all of those during last years state of the state. In fact one source told me yesterday that in this year's accomplishments sent out to employees, the administration listed the Santa visits to rural Alaska as an accomplishment.

Then there is our dear friend Tom Irwin, who was fomerly a public relations executive at GVEA after he dropped out of the Murkowski administration.

So that makes three Fairbanks neighbors and former GVEA executives that quite possibly have a hand in handing over a $300 million state asset to their former employer for a reported $50 million, minus the start up costs.

But wait, according to my sources there is more. The HCCP will be transferred to a new entity controlled by GVEA, but GVEA will not provide any guarantee of the $50 million debt. How’s that for bankruptcy protection and leaving the creditor totally exposed?



From what I understand the deal is done and AIDEA is only waiting for its next board meeting to approve the giveaway of the Heally Clean Coal Plant.

According to the AIDEA website, their next board meeting is January 15, 2009.

To read the AIDEA press release from 2005 regarding the filing of a law suit against GVEA as well as a detailed time line of the Healy Clean Coal Plant history, click on link:
http://www.aidea.org/PDF%20files/HCCP/AIDEA%20sues%20GVEA%20over%20HCCP.pdf