The gas pipeline contract knit together by the governor and three multi-national energy companies seems less the product of bruising debate and more the product of a deal written on a cocktail napkin in the country club bar.
     And no amount of tedious lectures by the governor's folks down at Centennial Hall during this special session changes that conclusion. In the course of 11 days, we heard from the governor's lawyers (contract and staff), from the governor's economists (contract and staff), and from the governor's policy cadre. The presenters, to a man (and they were all men), praised the governor and his gas pipeline deal.
     But we never heard from Bill Johnson.
     And that's too bad. Dr. William Johnson, Jr. published his doctoral thesis last August and it eviscerates the notion that North Slope oil companies are benignly interested in Alaska's future. His 300-page dissertation examines the public documents filed in a court battle between Alaska and 18 North Slope oil companies. Dr. Johnson summarized what's known as the Alaska v Amerada Hess case by noting the oil companies used "bookkeeping trickery to create legal loopholes to increase their profits" by undervaluing our royalty oil. In fact, two of the three oil companies the governor has cut his gasline deal with (Exxon and BP) were responsible for more than half of the $600 million finally reimbursed to Alaskans after the trickery was exposed over the course of the 15-year court fight.
     Since Dr. Johnson wasn't a Centennial Hall presenter, I've taken the liberty of comparing just a few of his thesis conclusions with just a few of the provisions in the governor's gas pipeline contract. (As I matched contract language with thesis findings, I was continually reminded of a phrase in one of the many Amerada Hess rulings by then-Superior Court Judge Walter Carpeneti. He noted at one point the state's position could only be characterized as "inexcusable trustfulness".)
     So, here are articles in the governor's gasline contract, coupled with appropriate findings from Dr. Johnson's thesis. They illustrate significant backsliding on the "inexcusable trustfulness" front.
    
     Article 5.1 Performance Standard. "Diligence" means advancing the project as diligently as is prudent under the circumstances.
     Certainly a lot of wiggle-room in that definition. The definition of 'diligence' here is important because the governor's oil company partners reap millions of dollars in tax concessions even while they study the feasibility of a possible, not mandatory, gas pipeline.
     There was an important definition battle in the Amerada Hess case, too. It took three years to get oil companies to acknowledge that the state's constitution, the state's statutes, lease agreements between the state and oil companies, and federal practice defined the point at which North Slope royalty oil is valued.
     Here's what Dr. Johnson said of the oil companies' definitional battle on royalty oil valuation: "The oil companies resorted to one of their primary tactics--that of purposeful, but legal, stalling. The disputed millions of dollars, after all, were literally in their pockets. . ."

     Article 37.2 Limitation on Damages and Remedies. The State and the Participants have negotiated this Contract in consideration of their consent to limit recovery of certain Loss. Accordingly, in no event is any Party liable to any other Party for the following Loss, however caused, that arise out of or relate to this contract or breach of it: (a) any consequential or incidental damages, including lost profits; or (b) any special or punitive damages.
     This provision means bad behavior by the parties (like the behavior each oil company demonstrated on the royalty oil battle) is remedied by simply saying don't do it again. It does not allow for full or partial recovery of losses (like the $600 million collected by the state in Am Hess) or punitive damages.
     Here's what Dr. Johnson said in his thesis about the governor's gasline partners' behavior in the Amerada Hess dispute: "Simply stated, the oil companies mastered the ability to manipulate their books to create artificially low profits. This amounted to fraud [against the state] to the tune of hundreds of millions of dollars. Their actions were a calculated gamble with minimal risk and three possible outcomes. First and best for the corporations was the possibility they would not get caught. Second, if they got caught and were forced to pay they at least would have stalled the process, thereby reaping interest on [the] money during the delay. Finally, there was the chance that if caught they might be able to spend enough money over litigation to make the battle too expensive for the state."
     Now, under the governor's proposed contract, three of these oil companies can fraudulently manipulate and, if caught, the state can't recover losses and the companies won't pay damages for bad behavior similar to the conduct they exhibited, and paid for, in Amerada Hess.

     Article 26.1 Agreement to Mandatory Dispute Resolution. Each Dispute is to be exclusively and finally resolved by the amicable resolution and arbitration procedures specified under Exhibit C, except for a Dispute to judicially enforce or vacate any Award, order, or judgment rendered under Exhibit C.
     Exhibit C is both amicable and mandatory arbitration. You can go to court only to enforce an award or judgment or order made by the arbitrator--not to appeal any decision made by arbitrators. Remember, this contract has the production tax rolled into it and also includes royalty provisions and payments in lieu of taxes. Remember, also, that Article 37, paragraph 2 (discussed above) says losses or damages cannot be awarded by an arbitrator.
     Here, again, is what Dr. Johnson says about oil company conduct relevant to this gasline contract provision: "[This case] exemplifies the self-serving behavior of the international oil corporations. The facts in the case document a corporate strategy that is obsessed with maximizing its profits, nothing more. They show how corporations pay little or no heed to what is beneficial for a community, a state, a country, the world. . ."
     So, under the governor's proposal, we abandon hundreds of years of case law that governs the conduct of corporations and toss our oil and gas payment recipe disputes, lease term disputes, and other contract disputes into the hands of arbitrators the corporations help pick.

     Dr. Johnson notes in his thesis that the Amerada Hess battle is not an anomaly--not the exception that proves oil multi-nationals are benign in dealings with our state. Alaska has been in court with the oil corporations continuously since the first barrel of oil was pumped from the North Slope. We've had: TAPS tariff disputes; a subsequent royalty oil battle where the state collected another $350 million; corporate tax disputes in the 1980s and 1990s; Exxon is still stiffing Alaskans on court-ordered damage payments from the 1989 oil spill; and the Regulatory Commission of Alaska contends oil companies are short-sheeting the state and others with inappropriate tariffs applied to oil running through the TAPS line.
     Maybe, just maybe, it's time we just say no to Exxon, BP and Conoco. After all, there are others out there--like Warren Buffet's MidAmerican Energy Company. The governor ran Buffet's company off a couple years ago. Ironically, the governor noted he did it because Buffet wouldn't commit to start construction of a gasline within five years. Now he's ended up contracting with oil companies in a deal with no commitment to start--ever.
     If not MidAmerican, how about TransCanada, one of the world's largest pipeline builders who also has a proposal the governor shunted aside. If not MidAmerican or TransCanada, how about the All-Alaska gas pipeline applicants who have a permitted gasline route from Prudhoe to an LNG port in Valdez.
     Let's just try them and see if they need the same 'concessions' the governor gave the oil companies.

Phone: (907) 465-4947 Fax: (907) 465-2108 Mail: Sen. Kim Elton, State Capitol Juneau, AK 99801   Got a scoop? Call or email your tips and suggestions to any of the email addresses below: Email: Senator.Kim.Elton Jesse.Kiehl Paula.Cadiente Web: http://elton.akdemocrats.org

Capitol Undercurrents  

Special session 'do' can lead to 'doodoo'--Legislative ethics laws prohibit lawmakers from soliciting or accepting campaign contributions while the legislature is in session. The exception is, if we're within 90 days of a primary election or general election, you can fundraise. The exception to the exception is that even within 90 days of an election, you can't raise money in the capital city. These rules simply make sense--legislators should not be able, for example, to invite oil tax opponents to a committee meeting at 3 p.m. and also invite them to your fundraiser at 5 p.m. But we need to be careful. Now some legislators want to hold special session committee meetings outside the capital city. If committee work is done in Anchorage, legislators are allowed the 3 p.m. committee/5 p.m. fundraiser situation. If the committee work is done in Juneau, the capital city, the 3 p.m./5 p.m. scenario is prohibited.

Poison pen?--The Department of Corrections flack is in hot water for writing a poison pen letter to the editor of the Juneau Empire using a false name. That's a journalistic no-no. The Empire notes: "when people are given the opportunity to publicly praise or criticize people, policies, agencies, or groups, it's only fair to the public that the newspaper also publishes who's offering the kudos or criticisms. That accountability is also important in preventing people from distorting the facts." The Empire has banned letters from the guy--assuming they catch him if he fakes it again. The flack's commissioner is also reviewing the situation and says he will take appropriate action. That just makes sense. You don't want your press person to be known as the fellow who lied to a newspaper editor. And the Corrections press person should have known better--he used to work at the Empire.

PPT Love letter #1--"I am dismayed at the results I have seen in the voting on the PPT. . . I am completely amazed at the stupidity of the people who voted against this. For some of your political future's (sic) I hope your constituents do not understand what you have done to the state and the people of Alaska for personal political gain. For some others I hope they do as you do not deserve the honor of representing them." From a muckety-muck at VECO, an oil service company, and big-time GOP donor.

PPT Love letter #2--"I'm sending this in response to your comments on a 30-year contract. . . Your (sic) acting like a third world dictator waiting for the field to be developed then jump in and nationalize it. You sound just like Kim Elton, now there's a man that loves to speak flowery words and get his name in the paper. . . I agree with Governor Shwartzenegger (sic) when he called politicians like that 'girlie boys'." Juneau resident.

AHHHH, well, forget the love letters--My emails and phone calls are running about 10-1 against a net profits tax at the low rate proposed by the governor and even fewer believe we should lock those rates in for 30 years--even if the constitution did allow a lock-in.