Dear Friends and Neighbors,

The third special session has concluded and the Legislature has voted to buy out TransCanada from the AK LNG project. The time spent in Juneau was informative both about gasline issues and about the long-term fiscal plan for the State. I hope everyone has a great weekend and stays safe on the icy roads!

Buying Out TransCanada:

The purpose of this special session was to hear Senate Bill 3001, the Governor’s bill requesting funds to continue the AK LNG project. As part of the bill, the Legislature was asked to approve roughly $68 million to reimburse one of our partners, TransCanada, for their expenses up to this point. The State’s partnership with TransCanada is defined by a Precedent Agreement (PA), signed by the past Administration.

In my newsletter last week, I linked to many different reports relating to AK LNG. Click here for the remainder of the presentation from the slide above.

Governor Walker called the special session because he believes the TransCanada buyout is in the best interest of the State. Through many presentations, which I highlighted in last week’s newsletter, the Administration made its case to the Legislature. On Wednesday, the State House unanimously voted “yes” on the bill. There are several reasons why buying out TransCanada will mean a better future for Alaska and the AK LNG project:

1)      TransCanada is charging the State an interest rate of 7.1% on all project costs paid on our behalf. The State of Alaska is confident that we can find less expensive financing.
2)      If the State does not terminate the PA by December 31st, 2015, we won’t have another opportunity until 2018. In the meantime, the State will continue to pay 7.1% interest on an additional $441 million expected to be financed by TransCanada during the next project phase.
3)      By terminating the PA with TransCanada now, it is estimated the State could earn up to $400 million more each year once the project is complete.
4)      Right now, the State is obligated to reimburse TransCanada’s costs (plus interest) even if the AK LNG project fails, TransCanada exits, or the State chooses to stop the project.
5)      Buying out TransCanada will increase the State’s voting rights to 25%, giving the State more direct influence and allowing it to ensure key technical decisions are being made in Alaska’s best interest.
6)      The TransCanada buyout “will have no incremental impact on the State’s long-term credit rating” (DOR).

In supporting the AK LNG project, I also have concerns about the Alaska Gasline Development Corporation’s (AGDC) proposed new regulations involving confidentiality agreements. The proposed regulations narrow confidentiality provisions to apply only to materials like income tax returns, financial statements, and trade secrets. By default under the regulations, AGDC is supposed to assume that information can be publicly disclosed “absent clear indication or demonstration to the contrary.” Our partners in AK LNG, BP, Conoco-Phillips, and Exxon, are concerned with the proposed regulations. And there is considerable debate about whether the State can act as a viable partner in the project without broader confidentiality agreements. During the special session, the Judiciary Committee, on which I serve, was scheduled to have a hearing on the confidentiality agreements. But we cancelled that hearing when the Attorney General initially declined to attend. I will continue working to resolve the issues surrounding the confidentiality agreements in a way the supports the success of AK LNG and the best interests of the state.

Long-term Fiscal Plan:

During the special session, the Governor introduced a key component of a long-term fiscal plan, which is currently named the “Sovereign Wealth Fund.” The Sovereign Wealth Fund would turn the Permanent Fund into an endowment-like fund that uses oil income to generate annual revenue from investments for the state. The state would use the revenue to fund state government. According to Governor Walker, the Sovereign Wealth Fund will generate $3.3 billion in annual revenue, which leaves a revenue gap of approximately $2 billion.

Watch the presentation the Attorney General gave to the Legislature about the Sovereign Wealth Fund here.

Another plan under consideration by the Legislature is Senator McGuire’s SB 114. SB 114 is similar to the Sovereign Wealth Fund: the bill utilizes a combination of the Permanent Fund Earnings Reserve and petroleum revenues to generate funding for the state. SB 114 would allow the Legislature to slow its utilization of state savings accounts like the Constitutional Budget Reserve fund.

I am committed to a long-term fiscal plan for the state as we continue to face low oil prices, declining oil production, and budget challenges.

Community Events and Opportunities:

The high school state swimming and diving championships are this weekend at Bartlett Pool, good luck to Dimond and West High School!

The women’s volleyball state tournament is November 12-14th at the Alaska Airlines Center, good luck to our local high schools!

As always, please let us know if you have suggestions or concerns.

Sincerely,

    Rep. Matt Claman

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