No way to build a pipeline

Recently, three congressional committees voted in favor of a proposal to waive certain laws governing the construction of a pipeline to deliver natural gas from Alaska to the rest of the country. These votes, if affirmed by both houses of Congress, would levy an extraordinary ''tax'' on consumers by making them assume financial risks that legitimately belong to the pipeline's sponsors and bankers. These risks include consumer payment of the pipeline's debt, even if sections of the project are never completed. And, in the event it is completed, consumers would have to pay such higher prices for their natural gas, three to four times what they are paying now, that OPEC oil will be cheap by comparison.

The sponsors of this $50 billion project are really pressuring Congress to bail them out of an uneconomic and financially unsound and risky venture. This pipeline was supposed to be built by private capital. At least that is what the public was told. In 1977 John G. Mc-Millian, chairman of Northwest Energy Company, the primary sponsor of the Alaska Natural Gas Transportation System (ANGTS), told President Jimmy Carter that he could raise the capital required without financial support from consumers, without providing the gas producers with an equity interest in the pipeline, and without federal loan guarantees. Unlike the sponsors of competing projects, Mr. McMillian made a proposal he must have known was unsupportable. Nevertheless, the Carter administration accepted Northwest Energy Company's project.

The public will never know whether Mr. McMillian ever really believed he could ''privately finance'' this extraordinarily costly pipeline. All that we do know is that he has failed. Major banks and financial institutions had so little confidence in the economics of the project that they refused to provide the necessary debt capital unless the risk of project failure were substantially reduced. Similarly, Exxon, Sohio, and Arco - the three companies which own the Prudhoe Bay gas reserves - refused any kind of financial support unless they could participate on an equity basis in the ownership of the pipeline.

Under the law passed by Congress in 1976 and under the conditions of President Carter's 1977 decision, shifting risk to consumers and allowing equity ownership by producers was prohibited. Only a waiver of law could permit these changes. Such a waiver was proposed by President Reagan and is now before Congress.

Congress is being told by the pipeline sponsors that the ''waiver package'' is necessary in order to raise private capital. But this argument is misleading. In the first place, the substantial tax breaks already available provide a taxpayer subsidy to the pipeline sponsors. Secondly, the waiver package would force consumers to pay for the pipeline in the event that any one section is completed even before the pipeline delivers one cubic foot of natural gas. Making consumers pay for segments of the pipeline before it is complete and operational shifts the substantial financial risks from the sponsors and banks to the ratepayers - in other words, a consumer subsidy.

It is ironic to find Mr. McMillian and his cosponsors arguing for this waiver package while at the same time, as part of the waiver, they would deny ratepayers a similar opportunity to reopen the regulatory determination. Under the spurious term ''regulatory certainty,'' Mr. McMillian would prohibit ratepayers from seeking reduced rates in the event that costs decline, or in the event that the sponsors have underestimated the depreciation life of the gas reserves.

According to statements from pipeline officials, the pipeline may also seek federal loan guarantees. In fact, it has been reported that officials of the Reagan administration might be favorably disposed to such financial arrangements. If this should occur - and given the widespread uncertainty about the economic viability of this $50 billion project it is likely to occur - we will have come full circle. Instead of a ''privately financed'' pipeline, it will be supported by consumer subsidies, by producer equity ownership and federal guarantees - all of which Mr. McMillian promised would be unnecessary.

But, substantive arguments and economic merit are not likely to have as much influence on Congress's votes as the massive lobbying campaign mounted by McMillian and his associates. From Walter Mondale to Robert Strauss, Mr. McMillian has probably hired nearly every well-known Democratic leader to influence Democrats in the House. Money is no object, especially when all the high-priced legal fees can be put into the pipeline's rate base. In other words, consumers will foot the bill.

It seems that the best friends for consumers are the conservative Republican members of Congress who object to the project on the basis that it is not being tested in the free market and liberal Democratic members who are opposed to shifting the risk for the project to the captive consumer. These politicians are not likely to be misled by allusions to national security or Canadian sentiment but will rather focus on the real question of whether the marketplace will support this project.

The waiver package undermines a market test and creates the unsavory precedent of bailing out a project which was authorized on the promise that no bailout would ever be required.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK