Senator Berta Gardner

October 27, 2015

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Serving Midtown, Spenard, and UMed

716 W. 4th Ave Suite 411.
Anchorage, AK 99501
 
Phone: 907-269-0174
Call Me: 1-800-331-4930

Sen.Berta.Gardner@akleg.gov
alaskasenatedems.com/gardner
facebook.com/BertaGardner

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Governor Bill Walker
Anchorage Office
550 W. 7th Ave, Ste 1700
Anchorage, AK 99501
(907) 269-7450
Gov.alaska.gov
 

Lt. Governor Byron Mallott
Anchorage Office
550 W. 7th Ave, Ste 1700
Anchorage, AK 99501
(907) 269-7460
LtGov.alaska.gov

Should Alaska Buy Out Transcanada?

Dear Friends and Neighbors,

Senator Gardner and Representative Tuck discuss the TransCanada buy out.
Senator Gardner and Representative Tuck discuss the TransCanada buy out.

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. Thats true, in part, because were considering a narrow and relatively uncontroversial topic. Thats not to say it isnt 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 TransCanadas interest in the project, changing the way Alaska funds the project and increasing the states influence within the partnership. It is critical to understand TransCanadas 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 Alaskas 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 states 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 Alaskas share of the project while shifting all the risk to Alaska. I believe if were 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 TransCanadas 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. Ill 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.

signed: Berta


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