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Some have complained that I only write about Ethan Berkowitz, but actually, I write about what I hear or read in the press. Recently, I finally got a chance to listen to a soundbyte from Governor Parnell thanks to a posting from the Fairbanks Daily News-Miner. If your are interested in watching the soundbyte go to:
http://www.youtube.com/watch?v=wLkf1TJxhH4&feature=player_embedded#!
In the video Governor Parnell defends his position on the Alaska Natural Gas Pipeline and the need to continue to support the $500 million reimbursement to TransCanada and ExxonMobil by citing the benefits of AGIA. The problem is that most of his justifications are either wrong or are of little value.
The method I have used in the article is to quote the governor and then provide my analysis and response, and where appropriate I have also provided the subject law or regulation.
It assures that there are 5 offtakes for gas for Alaska communities. – Governor Parnell
This is his first justification for supporting the $500 million.
Offtakes will occur where they are economic, not based on a demand by the state. As I stated in a previous article regarding the benefits of AGIA, or lack thereof, the only reason the Palin administration demanded 5 offtakes was because the Murkowski administration required 4. Offtakes will occur wherever the demand is sufficient to pay for the facilities necessary at the offtake site to provide access to the gas. Offtakes are about economics, not about meaningless demands. The state could have demanded 10 offtakes sites and the pipeline company would have agreed because the basis for the offtake site was that it would be paid for entirely by the entity taking the gas.
The real answer to the offtake issue is that all compressor stations should be designed to allow for offtake of gas.
My evaluation of this justification. – It’s not wrong, it’s just not important and certainly doesn’t justify giving a pipeline project $500 million.
AGIA must have #12 at AS 43.90.130(12) is reprinted here for your convenience.
(12) commit to provide a minimum of five delivery points of natural gas in this state;
It ensures that tariffs, instate tariffs for gas delivered to Alaska communities are measured by distance sensitive rates, meaning we are only going to pay for mileage for that gas from Prudhoe to Fairbanks for Fairbanks gas. We are not going to pay for mileage from Prudhoe to Chicago and back to Fairbanks which is what the producers could do if Alaska didn’t have that kind of protection. – Governor Parnell
Governor Parnell states that without the protection of AGIA the producers could charge Alaskans a tariff that included the cost of transporting the gas from Prudhoe to Chicago and back to Fairbanks. This simply isn’t true. It wasn’t true when AGIA was passed, and it is not true now. Surprisingly, AGIA even cites the federal law that would prohibit what the governor says could happen. So the Governor must know his statement is untrue and that protecting distance based tariffs is not a reasonable justification for providing TransCanada and ExxonMobil $500 reimbursement for moving the project forward.
My evaluation of this justification. – It’s wrong and doesn’t justify giving a pipeline project $500 million.
AGIA must have #13 at AS 43.90.130(13) is reprinted here for your convenience.
(13) commit to
(A) offer firm transportation service to delivery points in this state as part of the tariff regardless of whether any shippers bid successfully in a binding open season for firm transportation service to delivery points in this state, and commit to offer distance-sensitive rates to delivery points in this state consistent with 18 C.F.R. 157.34(c)(8); and
(B) offer distance-sensitive rates to delivery points in the state consistent with 18 C.F.R. 157.34(c)(8);
18 C.F.R. 157.34(c)(8) is reprinted here for your convenience
(8) Based on the In-State Study and the delivery points within the State of Alaska identified in paragraph (c)(1) of this section, there must be an estimated transportation rate for such deliveries, based on the amount of in-state needs shown in the study. Such estimated transportation rate must be based on the costs to make such in-state deliveries and shall not include costs to make deliveries outside the State of Alaska;
It assures access to that pipeline on favorable rates for future explorers so that the producers don’t control the pipeline but there is possibilities for more abundant cheaper gas from other areas. – Governor Parnell
This is the state’s “rolled-in” rates argument which I have written about previously. The governor’s argument here is accurate. AGIA does require that the pipeline company advocate for “rolled-in” rates, but that does not mean that this position is in the best interest of the state. There is no argument from either pipeline proposal or the shippers that the first expansions by compression will be through “rolled-in” rates. So, as a practical matter, the demand by the state that the pipeline company propose “rolled-in” rates is unnecessary because it is in the pipeline company’s interest and the shippers interest, and the FERC will probably require it. The real debate is over expansions by “looping,” building a second parallel pipe beside the first in order to expand that segment of the pipeline. I have written about this in other articles, but the effect of requiring the pipeline company to propose “rolled-in” rates under these circumstances will probably result in the state arguing for a reduced tariff for the owners of gas found in offshore federal waters where the state receives no royalty or taxes, the reduced tariff to be paid for by existing shippers already shipping gas in the pipeline, including in-state shippers. The result will be an incremental increase in the price of gas in Alaska to be paid for by Alaskans to benefit a gas owner that will pay no royalty or taxes to the state, clearly the wrong position.
My evaluation of this justification. – This argument I would rate as accurate but either not important or slightly detrimental to the state depending on which expansion the governor is referring to. But you certainly wouldn’t pay $500 million for a pipeline company to hold a position that is either not valuable to the state or possibly could hurt the state’s interests in the future.
AGIA must have #7 at AS 43.90.130(7) is reprinted here, in part, for your convenience.
(7) commit that the applicant
(A) will propose and support the recovery of mainline capacity expansion costs, including fuel costs, from all mainline system users through rolled-in rates as provided in (B) and (C) of this paragraph or through a combination of incremental and rolled-in rates as provided in (D) of this paragraph;
That $500 million dollars is protection for Alaskans in a deal that gets negotiated between multinational corporations. I think that’s a fair price to pay to assure that Alaska interests are protected. – Governor Parnell
I am not sure what the Governor is arguing here, but I think he is arguing that the $500 million is justified to protect Alaska’s AGIA requirements. As I stated above and in a previous article on AGIA, the $500 million was an incentive to encourage a pipeline company to do what no rational pipeline company would do, to move forward to filing for a FERC certificate after a failed open season. The only way to get a pipeline company to do this was to pay for the vast majority of the costs of doing so.
Maintaining the obligation to pay the $500 million may be the right answer, but it is not for the reasons stated by the governor. Justifying the commitment of $500 million to the project should be based on whether it helps move the project forward. Does it encourage the major players BP, ConocoPhillips, TransCanada and ExxonMobil to resolve their differences and move a single project forward or does it continue to provide one of the bases of dissention between the parties? Currently the “20 must-haves” of AGIA are one of the bases of disagreement between the parties. BP and ConocoPhillips do not agree with the requirements of AGIA. TransCanada has agreed by contract to meet the requirements of AGIA, but TransCanada’s partner, ExxonMobil has not agreed to those requirements. Currently AGIA stands in the way of the major parties to the pipeline in resolving their differences. Someday it may be time to abandon the requirements of AGIA, but the state may want to consider maintaining its commitment of $500 million to the project, but only if it can be used as a tool in the negotiations to bring the parties together and move the project forward, not as a burden that stands in their way.
Showing posts with label Governor Parnell. Show all posts
Showing posts with label Governor Parnell. Show all posts
Sunday, October 17, 2010
Thursday, September 23, 2010
Political Posturing
The Parnell and Berkowitz campaigns recently traded barbs regarding the plan Ethan Berkowitz put forward to allow individual Alaskans to own a piece of the pipe through a dividend check-off program. Although the debate was interesting from a political posturing standpoint, substantive debate on the issues was not advanced by their exchange.
The Proposal
Ethan Berkowitz advanced the idea that Alaskan’s should own a piece of the pipe through a dividend check-off program. The implication was that all Alaskans would have a right to participate and that 20% of them probably would elect to participate. The impression was also given that the 20% participation would be from a cross-section of Alaskans. Diane Benson, the lieutenant governor candidate, added weight to that impression by stating that she would have been excited to have had an opportunity like this when she was a young mother of limited means. The intent of the campaign was to appeal to all Alaskans. This may have been a good political sound-byte, but it had problems its application to reality.
The truth is the average Alaskan could not afford to give up their dividend to invest it in a pipeline. Only those Alaskans with surplus spendable income would be able to participate in the project and only a small percentage of them would participate after they found out how long it would take for them to begin to receive a return on their investment. An optimist might suggest that 20% of Alaskans could afford to participate in the program and maybe 20% of those eligible would elect to do so. That would mean an optimistic estimate of 5% of Alaskans would participate, and I am not an optimist; so I believe the number would be much smaller.
The Parnell Campaign Response
The Parnell campaign then decided to assume the Berkowitz plan was accurate, crunched the numbers using a report produced by Scott Goldsmith and argued that the own a piece of the pipe proposal would cost the state 2,000 jobs. The reasoning was that if investing the PFD in the economy created 10,000 jobs, taking 20% of that investment out of the economy would cost the economy 20% of the jobs created; thus the state would lose 2,000 jobs through the own a piece of the pipe proposal.
The Parnell campaign knew as well as anyone that a cross-section of Alaskans would not participate in the own a piece of the pipe dividend check-off. They knew that the average Alaskan could not afford to participate in the program and that the impact of the program would be much smaller that what they projected. But instead of arguing the truth, that the program would not be effective, they decided to “believe” what Berkowitz proposed and argue that the program was bad because it was going to cost Alaskans jobs. They went for the sound-byte instead of the truth. Then to add insult to injury, when they were caught at assuming bad numbers, their response was effectively, “that was my response and I am sticking to it.”
Berkwitz Response
Not to be outdone by the Parnell campaign’s poor judgment, the Berkowitz campaign accused the Parnell campaign of playing political games. The only thing that came to mind at this point is the old saying about the pot calling the kettle black. The Berkowitz campaign, apparently forgetting what they initially suggested in their initial rollout of the proposal, now argued that the Berkowitz campaign can’t control what people will do with their dividends and that they won’t control what people are doing under the plan, apparently supporting what Goldsmith had said about the impact of the plan not being the potential loss of 2,000 jobs. I assume they now believe that 20% of Alaskans won't participate in the dividend check-off proposal.
The Result
Both campaigns have soiled their reputations by their responses to each other. Hopefully this is not a sign of what is to come in this election.
Pipeline Ownership
The Berkowitz campaign has stated that individual ownership through the dividend check-off proposal will enhance the likelihood of success of getting a pipeline. The Parnell campaign believes that staying the course through AGIA provides the state with the greatest likelihood of getting a pipeline.
A substantial amout of research and analysis was done during the Murkowski administration regarding providing Alaskans the opportunity to own a piece of the pipe and regarding the importance and value of state ownership of the pipeline despite the Berkowitz campaign argument that they are the first.
In a future article I will discuss state ownership of the pipeline, what is required if the state wants to participate and the timing of that participation. I guarantee it won’t be what either campaign is recommending.
The Proposal
Ethan Berkowitz advanced the idea that Alaskan’s should own a piece of the pipe through a dividend check-off program. The implication was that all Alaskans would have a right to participate and that 20% of them probably would elect to participate. The impression was also given that the 20% participation would be from a cross-section of Alaskans. Diane Benson, the lieutenant governor candidate, added weight to that impression by stating that she would have been excited to have had an opportunity like this when she was a young mother of limited means. The intent of the campaign was to appeal to all Alaskans. This may have been a good political sound-byte, but it had problems its application to reality.
The truth is the average Alaskan could not afford to give up their dividend to invest it in a pipeline. Only those Alaskans with surplus spendable income would be able to participate in the project and only a small percentage of them would participate after they found out how long it would take for them to begin to receive a return on their investment. An optimist might suggest that 20% of Alaskans could afford to participate in the program and maybe 20% of those eligible would elect to do so. That would mean an optimistic estimate of 5% of Alaskans would participate, and I am not an optimist; so I believe the number would be much smaller.
The Parnell Campaign Response
The Parnell campaign then decided to assume the Berkowitz plan was accurate, crunched the numbers using a report produced by Scott Goldsmith and argued that the own a piece of the pipe proposal would cost the state 2,000 jobs. The reasoning was that if investing the PFD in the economy created 10,000 jobs, taking 20% of that investment out of the economy would cost the economy 20% of the jobs created; thus the state would lose 2,000 jobs through the own a piece of the pipe proposal.
The Parnell campaign knew as well as anyone that a cross-section of Alaskans would not participate in the own a piece of the pipe dividend check-off. They knew that the average Alaskan could not afford to participate in the program and that the impact of the program would be much smaller that what they projected. But instead of arguing the truth, that the program would not be effective, they decided to “believe” what Berkowitz proposed and argue that the program was bad because it was going to cost Alaskans jobs. They went for the sound-byte instead of the truth. Then to add insult to injury, when they were caught at assuming bad numbers, their response was effectively, “that was my response and I am sticking to it.”
Berkwitz Response
Not to be outdone by the Parnell campaign’s poor judgment, the Berkowitz campaign accused the Parnell campaign of playing political games. The only thing that came to mind at this point is the old saying about the pot calling the kettle black. The Berkowitz campaign, apparently forgetting what they initially suggested in their initial rollout of the proposal, now argued that the Berkowitz campaign can’t control what people will do with their dividends and that they won’t control what people are doing under the plan, apparently supporting what Goldsmith had said about the impact of the plan not being the potential loss of 2,000 jobs. I assume they now believe that 20% of Alaskans won't participate in the dividend check-off proposal.
The Result
Both campaigns have soiled their reputations by their responses to each other. Hopefully this is not a sign of what is to come in this election.
Pipeline Ownership
The Berkowitz campaign has stated that individual ownership through the dividend check-off proposal will enhance the likelihood of success of getting a pipeline. The Parnell campaign believes that staying the course through AGIA provides the state with the greatest likelihood of getting a pipeline.
A substantial amout of research and analysis was done during the Murkowski administration regarding providing Alaskans the opportunity to own a piece of the pipe and regarding the importance and value of state ownership of the pipeline despite the Berkowitz campaign argument that they are the first.
In a future article I will discuss state ownership of the pipeline, what is required if the state wants to participate and the timing of that participation. I guarantee it won’t be what either campaign is recommending.
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