Since the Legislature approved the Alaska Gasline Inducement Act last year, some people have questioned whether the state's potential $500 million capital match is necessary. Even some of those who voted for it have asked, "is AGIA worth $500 million?"
While the fact that AGIA was passed so resoundingly would appear to be a strong indicator, it bears repeating now and until legislative action is taken this summer -- the answer is unmistakably yes. The $500 million provided under AGIA is an investment that will pay for itself directly as well as indirectly.
The state's investment under AGIA buys progress on the gas line. Alaskans have waited decades to see their natural gas resources developed and transported to waiting North American markets. The AGIA provisions, particularly the commitments to set a timeline and then keep it, ensure that progress takes place.
There are myriad questions that will need to be answered before dirt is turned on this project, but we must remember that the journey of a thousand miles, or in Alaska's case 1,715 miles, begins with a single step.
The AGIA provisions require TransCanada Alaska ("TC Alaska") to conduct an open season within 3 years of receiving the license. We can say with certainty that once the license is awarded, the open season is at most three years away. In fact, TransCanada Alaska has already promised to reach open season in 24 months. We've never been in a position to know that before. That is progress, plain and simple.
Likewise, TC Alaska has committed to timelines on the filing for federal pipeline certificates. These commitments are enforceable, so again they ensure that progress will be made. That is a first, and Alaskans should be excited about that.
The investment also buys certain provisions that I'd describe as protections for future Alaskans. Our current lease agreements allow for the resource developers to deduct transportation costs from royalty payments. In order to protect the value of our resources, we must be sure that the cost of transportation is not made unnecessarily expensive because that cuts the amount of royalties the state collects.
The AGIA protections guarantee the gas line will be financed with a debt-to-equity ratio that results in a fair transportation fee, while also providing a fair return for the pipeline builder. Transportation fees must be kept as low as possible so that the state can continue to fund essential state services, but also so that gas can be delivered to Alaskans at the lowest possible cost.
Another key AGIA provision that protects Alaskans from unnecessarily high transportation costs is the requirement that deliveries inside the state pay less than the fee for shipping gas all the way to the Lower 48. Low overall shipping rates and reduced costs for in-state deliveries are part of what the state's investment buys.
In less than 12 months since the legislature passed AGIA, the state has seen two separate producer proposals as well as a host of bids under the AGIA process. This is a far cry from where we found ourselves as recently as two years ago, when the Murkowski administration's contract would have required enormous concessions from the state, as much as $10 billion.
When you consider the cost of those state concessions, plus the costs Alaska incurs without the low-cost transportation commitments made by TC Alaska, plus the assurance that timelines will be set and then kept, then the answer is abundantly clear. Is AGIA worth the $500 million investment? Emphatically yes.
Sarah Palin is governor of Alaska.
By GOV. SARAH PALIN