First AGIA reimbursement submitted

The state is getting ready to write its first check to TransCanada Corp., its partner in pursuit of a natural gas pipeline from the North Slope to North American markets.

The state's licensee under the Alaska Gasline Inducement Act, TransCanada filed an invoice earlier this month for expenditures it made through the end of the first quarter 2009. At just over $2.6 million, the expenditure total is a fraction of the $150 million TransCanada and its partner, Exxon Mobil Corp., expect to spend through an open season in 2010.

Exxon Mobil joined TransCanada as a partner in designing the gas pipeline -- with an emphasis on engineering a North Slope gas treatment plant -- in June.

TransCanada vice president Tony Palmer confirmed his company turned in expenses from December 2008, just after receiving the state's license under AGIA, through the first quarter of 2009, which ended March 31. The state will have to decide how much of the $2.6 million total is eligible for reimbursement.

State Revenue Commissioner Pat Galvin said he's requested additional information and formatting changes from TransCanada, and is expecting resubmission soon. The state will pick out qualified expenditures and send 50 percent back. Pending resolution of the formatting issues, TransCanada expects to file a second-quarter reimbursement report soon.

The invoice is significantly less than the $11 million TransCanada expected to spend through the first quarter of this year, according to an update the state Department of Revenue and Department of Natural Resources sent to legislators in April. But the state took longer than expected awarding the AGIA license to TransCanada, a formality in November that opened the door to reimbursable spending.

"You won't be surprised to hear the number will ramp up quickly as we move forward," Palmer said.

At the same time, a competing pipeline proposal by producers BP and ConocoPhillips, dubbed Denali, said it had spent $55 million in field work through 2008, and anticipated 2009 expenditures to hit about $82 million. TransCanada also spent money on a 2008 field season.

Money spent now is going toward field work, environmental and regulatory preparation, and ironing out costs that will be critical in forming the reliable project price tag needed during an open season. Under AGIA, the state will reimburse TransCanada up to $500 million for costs incurred obtaining a Federal Energy Regulatory Commission certificate authorizing the pipeline. Alaska will reimburse at 50 percent before an open season, and at 90 percent after.

During an open season, the pipeline builder lays out projected costs that will figure into tariffs charged to transport the gas, and asks producers to buy space in the pipeline. Those commitments drive the project through the next key phases -- securing financing and obtaining a building certificate from FERC.

Both TransCanada and Denali say they'll hold open seasons in 2010. TransCanada expects to conclude its bid period at the end of July. Producers have warned that bids will likely be contingent on future negotiations with the state on fiscal terms producers say are necessary for gas development on the North Slope.

But steep spikes in North American natural gas supply and demand, coupled with low prices and reports of massive new shale gas reserves, have prompted some to question the wisdom of Alaska's $500 million investment in a pipeline that doesn't have the full, up-front support of gas producers.

Rep. Jay Ramras, R-Fairbanks and a candidate for lieutenant governor, was disappointed in TransCanada's low initial spending, and said he expects it to increase dramatically after an open season, when the state is on the line for a higher reimbursement rate. He raised questions about the state's partnership during the last legislative session.

"I think it's an appallingly low figure, which is indicative of TransCanada's intention of manipulating the system, and that what we're seeing from them is an under-spend," Ramras said.

He referenced a recent report by former state gas economist Roger Marks that suggested AGIA allows back-end loading of planning costs that would be better spent early on. Marks cited an IPA Institute report on the greater chances of success in megaprojects where planners spent more money up front.