The Sovereign's Responsibility

Much has been said about the State of Alaska's responsibility to get a pipeline project moving. Alaska's governors (present and past), legislators, candidates, and advocates for various alternatives have all weighed in on the issue. Most of the comments and positions have centered on when and how to negotiate with the producers and how that will affect the upcoming elections in 2010. The most popular position seems to be waiting to negotiate with the pruducers until after the open season when the State will know more about the cost of the pipeline and the conditions under which the producers will ship gas. This might seem like a logical position at first blush, but not all seemingly logical positions are right. The State does have a responsibility toward the pipeline and toward the producers, but negotiations is not a part of that responsibility.

The State has a right to negotiate contracts when granted that right by law. The Stranded Gas Development Act (SGDA) granted the State the right to negotiate a contract with anyone interested in building a gas pipeline. Included in the SGDA was the right to negotiate taxes and other incentives in order to encourage the building of the Alaska Gas Pipeline. This course of action resulted in a contract with the producers that was ultimately rejected by the people of Alaska.

Another form of contract negotiations is through the competitive bid process. The Alaska Gasline Inducement Act (AGIA) utilized this process when it granted TransCanada a license under the conditions stated in the statute. Once the license was awarded, it became a binding contract on the State. The State agreed to provide TransCanada with a State matching contribution of up to $500 million in support of their project and a commitment not to extend preferential tax treatment or state money to competing projects. In exchange TransCanada agreed to the conditions under which the license was granted, including certain timelines and commitments regarding expansion of the pipeline. TransCanada is currently pursuing building a pipeline under that license. The license does not provide for the State to negotiate with the producers in order to make the TransCanada project successful.

There are no other methods of negotiations provided for in statute except those found in the SGDA and AGIA. If the producers require certainty or changes to the tax structure beyond that which is currently granted in the law in order to make the Alaska Gas Pipeline project economic, then they have the right just like every other resident of the State of Alaska to take their petitions to the legislature. If they can convince a majority of the legislators in an open public process of their recommendations, the legislature will change the laws and address those concerns. If they cannot, the producers will move forward or not move forward with the project based on the laws as they now stand. When determining if a law needs to be changed, the sovereign does not negotiate with anyone, no matter how strong, rich or powerful they may be. If someone wants to convince the governor of their requests, the governor may submit proposed legislation to the legislature for their consideration, but it is the legislature's responsibility to determine if the requests are justified.