Blogs by Rep Bob Lynn

Blog site of Representative Bob Lynn, Alaska House of Representatives,District 31 Anchorage, Alaska. Blogs consist of public comments during legislative sessions, speeches, political commentary, as well as personal observations, and some journal type entries. Comments are invited.

Location: Anchorage, Alaska, United States

Member of the Alaska State House of Represeentatives since 2003. US Air Force, Retired; military bandsman; F94C interceptor pilot; Vietnam service as radar controller (Monkey Mountain), radar site commander(Pleiku); Government Contract Management; Public school Teacher, Retired. Married 55 years to Marlene Wagner Lynn, 6 children, 20 grandchildren, 1 great-grandchild. Member St. Elizabeth Ann Seaton Church. Former Tucson Arizona policeman, Ambulance Driver and Mortician's Assistant, Realtor (currently on referral status).

Thursday, July 31, 2008


My vote on the TransCanada gas pipeline proposal was probably one of the most critical votes I’ll cast during my legislative service. Few votes on controversial issues are easy, and the gas pipeline vote was controversial for every legislator, however they voted. I’ve responded by email to several constituents who asked why I vote as I did. As their representative in the legislature they deserved an answer. One of my mottos is, “The better the communication, the better the representation.” I thought I would turn some of my response to constituents into this Blog, for others who may be interested.

My short answer for my “Yes” on the TransCanada license: I sincerely believed it was the best vote for the people of all Alaska. I’m well aware some good and very knowledgeable people might have an opposite honest opinion (as did several legislators). The longer answer for my “Yes” vote is a combination of many factors. Let me list just a few.

The most important factor for my vote was input from constituents - both for and against - as well as hundreds of hours of information gained from hearings throughout Alaska, from one end of the state to the other. We heard from Governor Palin’s administration and consultants, all the competing pipeline interests, plus expert consultants hired by our own Legislature.

Along with the public, our legislators were subjected to slick TV commercials and full page newspaper ads. Frankly, I didn’t pay much attention to them because they represented more “sizzle than steak.” I confess to being irritated by one proposed ad that threatened, if I didn’t vote their way, to list my name and names of other legislators, under convicted criminals, et cetera. I don’t respond well to threats. Reasonable people should be able to disagree without being disagreeable.

TransCanada, the pipeline builder selected by the administration, did no “push back” advertising about their proposal, or about the claims and promises of their competitors. TransCanada told me “that’s not our style” - that they rely on the merits of their proposals to get approvals, not commercials aimed at getting the public to pressure their legislators for a “Yes” vote weeks before an election. As a result of TransCanada not conducting an advertising counter-offensive, the general Alaska public has been getting the “story” only from those interested in promoting the Denali Project, or some form of “All-Alaska” LNG project to Valdez.

For Alaskans monitoring the pipeline hearings in person, or on Gavel-to-Gavel TV, or those with personal pipeline expertise, advertising by “whoever” was likely of little or no consequence. Those persons had much the same information required for an informed opinion as did I (even if we came to different conclusions).

Last year our legislature voted 59 to 1 in favor of the Alaska Gas Pipeline Inducement Act (AGIA). The Act established a process for applicants to compete for a state license, under which they could receive certain inducements in exchange for committing to a list of 20 “must haves.” These 20 provisions were aimed at ensuring that any Alaska gasline project protected our state’s interests. The “must haves” essentially guarantee four things; that a project move forward immediately; that new explorers be able to get their gas in the line on reasonable terms; and that Alaskans have access to the gas and jobs generated by the project. That’s what the 59-1 vote by our legislature was all about. That’s why I was a “Yes” vote on AGIA.

The three major producers chose not to apply, and that’s their right. It’s logical to assume they may not have wanted to abide by one or more of the “must haves” the legislature deemed necessary for the good of our state.

Everyone who did apply under AGIA did compete, because none of the license applicants knew who was applying and who was not. As a result of the process - proposed by the administration and enacted into law by our legislature - TransCanada’s proposal was sent to our legislature for an up-or-down vote, without amendments.

TransCanada is a quality pipeline builder that has built and is currently operating over 36,500 miles of pipeline across North America. TransCanada also accepted every one of our state’s required “must haves,” and passed the administration’s scrutiny of their application.

For me it was reasonable, after passing AGIA 59 to 1, to consider voting for an applicant who complied with AGIA, and passed the governor’s review of their proposal. I don’t think it’s fair for the legislature to establish a process, encourage businesses to engage in that process and then, a few months later, abandon the process or change the rules we had made. With some of those thoughts in mind, I think the AGIA process deserves a chance to work.

I heard nothing in the hearings to cause me to abandon the AGIA process. Unfortunately, probably more time in the hearings was spent re-debating AGIA, a law we already passed, than in debating the issue on the table i.e. whether TransCanada’s proposal sufficiently maximizes the state’s interests. That is the only pipeline issue we are here in Juneau in Special Session to vote on; a just a “Yes” or “No” vote. I think there have been unnecessary and hurtful delays in voting. Even if the TransCanada license is finally approved, such delays could cost TransCanada valuable work time because of Alaska’s short summer.

Is there risk in approving the TransCanada license? Of course. But without some risk there is no reward. Was the AGIA process perfect? No. Is TransCanada’s proposal perfect? No. But if we wait for perfection, nothing would ever get done. We have waited to get the gas pipeline “show on the road” for 30 years, and it is long past time to move things forward. It’s a truism that “perfection can be the enemy of progress.”

Many people support an “All Alaska” gas pipeline (AGPA i.e. Alaska Gasline Port Authority) from the North Slope down to Valdez. On the surface, the All Alaska route sounds good. At one time it sounded good to me, and also to Governor Palin. However, the information presented during our hearings led me to believe the best way to get an Alaska LNG project is first to build TransCanada’s proposed project through Canada to Lower 48 markets. The good news for supporters of the All-Alaska pipeline is that TransCanada’s proposal does allow for a liquefied natural gas (LNG) pipeline to be built to Valdez if sufficient gas is committed.

But right now, there’s evidence a successful LNG project would face several significant hurdles. Among the hurdles would be the difficulty in obtaining a federal LNG export license, because of the high demand for clean energy in the Lower 48. Giving preference to delivering gas to the Chinese government, rather than to citizens of the United States of America would be problematic. It’s unlikely our state would find much federal support for a project which exported gas to Asia, rather than markets in the lower 48. Moreover, the costs of an LNG project are significantly higher due to the added cost of the gas liquefaction plant and tanker ship fees. This higher cost much also be supported by less gas, because more gas is consumed in the liquefaction and transportation of LNG. Although gas currently is selling for much more in Asia than in the U.S., that price differential is likely to change in the not-so-distant future. This means that both the state and Producers ultimately could make less money from an LNG project.

The North Slope producers have also expressed their preference for a route to the U.S. through Canada since day one. That’s evidenced today by their proposed Denali Project which is currently set to compete with TransCanada. If there are, in fact, challenges with getting the Producers to commit gas to someone else’s pipeline, these challenges will be much more onerous for a project which tries to force them to ship their gas to a different market. While an LNG project would be a valuable project to have in Alaska, we must get the main line built first. Hopefully, one day we’ll benefit from both a line to Valdez and a line to the Lower 48.

I understand some individuals are concerned about running a gas pipeline through Canada, because it’s a foreign nation. But remember, the Alaska Highway also runs through Canada, and the two-nation highway has been a boon to both Alaska and the United States since World War II. Either the TransCanada or the Denali pipeline would essentially follow the Alaska Highway through both Alaska and Canada.

Let there be no doubt. The Alaska producers are good people, run outstanding business enterprises, are terrific negotiators, and have been responsible for most of our state revenue. They’ve also contributed to many wonderful community projects and activities. That said, it’s logical that a producer-owned pipeline, such as Denali, may be subjected to management decisions that would reflect the best interests of their own shareholders, rather than new shippers.

In contrast, an independent pipeline company like TransCanada would benefit from expanding their pipeline to accommodate more shippers. An independent pipeline would likely spur more exploration from drillers who had reasonable certainty of shipping any gas discovered. There’s also the issue of “rolled in rates,” meaning that under AGIA new shippers would enjoy the same shipping rates as any other shippers. I do understand that Federal Energy Regulatory Commission (FERC) has a role in determining both expansions and tariffs.

Hopefully, at some point, the North Slope producers (The Denali Project) will partner with TransCanada to the benefit of all parties. These are all smart businesspersons and, if it’s good for their shareholders, may agree to share risks and, among other things, work together to reduce regulatory delays.

There’s legitimate concern about the 500 million inducement offered to TransCanada. It’s a lot of money (but peanuts compared to what Alaska would have been obligated to under former Gov. Murkowski’s pipeline proposal). However I believe the money represents a wealth producing investment that buys Alaska a place at the table, and I think that’s pretty important. It also gets us a timeline. Most importantly, it buys us the 20 “must haves” we voted for when we passed AGIA.

I just want you to know that I put a lot of thought into my vote. As I said before, it was based on constituent contact, and my judgment of the factors presented by the administration, the competitors, public testimony, and expert consultants hired by our own legislature. When we hire consultants, it makes sense to consider what they tell us.

We have wanted and needed a gas pipeline for decades, even generations. Hopefully a pipeline may finally be on the horizon - but there are no guarantees. I certainly was reluctant to derail a legitimate pipeline proposal that resulted from a process the administration set up and we voted on, before TransCanada has a fair chance to perform. Whatever, Denali is still in the running, and we are told they are proceeding with their work.

I really felt, from everything I learned, that voting for TransCanada was the best vote for Alaska at this time. I hope I’m right. Time will tell. I’m not infallible. My vote wasn’t “political.” My vote came from my heart as well as my head. I tried to keep an open mind on everything I heard. Understandingly, some will agree with my vote, and some will not - but I do respect everyone's opinion.

I took the above photo of the House vote tally board moments after the historic vote was taken.
I have some previous Blog entries that also relate to my thinking on gas pipeline issues leading up to my vote.

Sunday, April 20, 08: “Thoughts on Denali, the Alaska Gas Pipeline”
Saturday, May 24, 08: “Tick, Tock, Tick, Tock”
Friday, June 27, 08: “Abominable No Men”
Tuesday, July 8, 08: “A Bullet Line?”
Tuesday, July 15, 08: “I Don’t Respond Well to Threats”


Blogger Disappointed said...

I appreciate your extensive comments about advertising, but frankly I paid no attention to advertisements and commercials throughout this process. For me the issues are very simple:

1) What is necessary to make any gas pipeline project succeed?
2) What is the optimum path to move a project forward?

AGIA and the subsequent TC application assume that all that is required is to reach the point where an applicant has filed with FERC and solicits an open season. However, the FERC testimony was quite clear... a project with gas commitments will be necessary to gain FERC approval and be successful. TC's own testimony acknowledges the same. The AGIA application parameters effectively excluded the very shippers that will be required to make a project financeable via commitment of gas.

As FERC testimony indicated, neither AGIA nor an AGIA application is required to progress a project. The state's role should be to bring the necessary parties together to reach consensus on the means to advance a project. AGIA reflected a decision by the administration to eschew its role in order to attempt to advance a project with only one key component. I was extremely disappointed to see the legislature follow a poor lead by the administration and fail to act (for two straight years) on an opportunity to bring all necessary parties together and work out a plan to progress a project.

I was also disappointed that the legislature apparently discounted the importance of Point Thompson and ExxonMobil to the financeability of a project. The 800 lb. gorilla is still in the room and will have to be part of any successful gas pipeline project.

I noticed that you described the four state "must have" guarantees but only described there a fourth?

I was particularly disappointed that the legislature also failed to recognize that the state's "must haves" effectively demonstrated the meaningless nature of AGIA. Please recall that FERC testimony made clear that AGIA's "must haves" are essentially contained within FERC approval criteria. AGIA added nothing except a $500 million obligation. Did it never occur to the legislature that there might be something wrong with AGIA when it resulted in only a single complying application and that it took a $500 million bonus to convince TC to submit an application?

Please also note that your list of "must have" guarantees omits a crucial component that is sorely lacking in AGIA: the ability to obtain commitments of existing gas supplies on reasonable terms.

So where are we today? If the TC application passes, the state will have effectively painted itself into a corner. TC will tap the state for $500 million to reach open season and the shippers who were unable to apply under the sub-economic parameters of AGIA will be left with a decision as to whether or not to commit supplies on terms that are still not economic. The state will be unable to do anything to remedy any issues without triggering a treble damages liability. I see no outcome except an unsuccessful open season and a material long-term delay in a gas pipeline project. I believe that this will be the legacy of AGIA.

Bob, I hope I am wrong. I believe that all of the citizens of this state would receive substantial long-term benefits from a successful gas pipeline project. I very badly want a project to happen. However, there is no way a project of this size and risk can happen unless all the key players have a seat at the table and are given an opportunity to participate on reasonable economic terms. AGIA failed to achieve this.

8:20 AM  

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