October 27, 2015
Serving Midtown, Spenard, and UMed
716 W. 4th Ave Suite 411.
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Governor Bill Walker
Lt. Governor Byron Mallott
Should Alaska Buy Out Transcanada?
Dear Friends and Neighbors,
As the Alaska State Legislature comes up to speed on this third special session it seems the temperature is somewhat cooler than it was during intense budget debates and the battle over Medicaid expansion. That’s true, in part, because we’re considering a narrow and relatively uncontroversial topic. That’s not to say it isn’t an important topic; in fact it is a significant economic decision that could change the way the Alaska Liquid Natural Gasline (AKLNG) project goes forward.
In short, the legislature will decide whether or not to buy out TransCanada’s interest in the project, changing the way Alaska funds the project and increasing the state’s influence within the partnership. It is critical to understand TransCanada’s role in the current AKLNG model. The state is in a business partnership with the three major producers. In that partnership Alaska receives a 25 percent ownership interest in the project. TransCanada is currently acting as a lender to the state, covering Alaska’s cash calls during the pre-FEED and FEED stages, and then recouping that money from the state either as cash payments with interest, if the project fails, or in the form of tariff payments if the project succeeds. TransCanada also gets roughly half of the state’s interest in the project.
Most importantly, the state is on the hook to repay TransCanada, plus roughly 7 percent interest under any circumstances. If the project fails, Alaska is on the hook. If TransCanada pulls out early, the state is on the hook. If the project succeeds, Alaska is on the hook. In essence TransCanada gets a high interest rate payback and part of Alaska’s share of the project while shifting all the risk to Alaska. I believe if we’re going to take the risk, we should enjoy our full share of the upside.
By severing ties with TransCanada now, the state will be responsible to make the early cash calls, but Alaska will have its entire 25 percent interest in the program, giving us a much more powerful seat at the table. That means that while the state will have to come up with more capital in the early stages of the project, Alaska will receive more revenue once the project is online – as much as $400 million per year more. We could wait until a later date to buy out TransCanada’s interests, but the longer we wait the higher that payment would be, potentially forcing the state to come up with billions of dollars on short notice.
I believe the decision to sever ties with TransCanada now is the right call. It will earn the state more money later, and it will give us a better bargaining position throughout the project. I’ll keep you posted as the special session progresses.
P.S. It is my belief that TransCanada supports the buyout.
I’m Berta and I’m still listening,
If you have any questions, please feel free to contact my office.