The issue of whether TransCanada has any obligations under partnership agreements of Alaska Northwest Natural Gas Transportation Co. for the Alaskan Natural Gas Transportation System has been much discussed since TransCanada’s bid was accepted under Gov. Sarah Palin’s Alaska Gasline Inducement Act.
The partnership agreements relate to efforts in the late 1970s and 1980s to build a gas pipeline from the North Slope to markets in the Lower 48, an effort that ground to a halt when natural gas prices crashed in the Lower 48.
On Jan. 16, the state asked TransCanada for answers to a number of questions about the original partnership and its possible impact on the gas pipeline TransCanada proposes to build from Alaska’s North Slope to Outside markets.
TransCanada’s Jan. 24 response is posted on the state’s AGIA Web site.
In its query, the state said that it understands the original partnership agreements “contained provisions under which the capital account of a withdrawing partner would be reclassified to ‘subordinated debt’ of the partnership and payable by the partnership to the withdrawn partners after” the gas pipeline became operational and “when the partnership determines that they can be made without undue hardship.” In other words, whatever the original gas line partners invested has to be paid back by TransCanada when it thinks it can do so.
The April 12, 2007, financial report of the original partnership filed with the Federal Energy Regulatory Commission shows the obligation to withdrawn partners “is approximately $8.9 billion,” the state said.
Partnership formed in 1978
TransCanada summarized background on Alaska Northwest Natural Gas Transportation Co., or ANNGTC, in its response.
ANNGTC was formed in New York in 1978 as a general partnership to construct and operate the Alaska Natural Gas Transportation System, which was to be built based on the Alaska Natural Gas Transportation Act of 1976.
TransCanada included a copy of the gas pipeline partnership agreement and all of the amendments.
Quick construction of a line was anticipated when the gas line partnership was formed, with an operational date as soon as Jan. 1, 1983. Each partner made an initial capital contribution equal to its pro rata share of up to $24 million; the board set the amount of annual contributions thereafter.
“Partners who did not wish to continue contributing had the option of withdrawing, subject to a continuing obligation on the part of partners who joined later than others, to make equalizing payments to true up their capital contributions to the amount of the original partners’ contributions,” TransCanada said.
The rights of partners to withdraw were “significantly” limited in the partnership agreement, TransCanada said. They were not entitled to any return on their capital contributions until after completion of the line.
When the partnership’s executive committee determined payment might be made without undue hardship to the partnership, the withdrawn partners would receive the amount of their capital contribution along with a return on that capital from the date of their withdrawal to the day of payment calculated at the 14 percent rate FERC set for funds during construction.
TransCanada said the partnership has recorded the amounts due to withdrawn partners under the agreement as contingent liabilities on its financial statements; the liabilities were approximately $8.9 billion as of Dec. 31, 2006.
Partners began withdrawing in 1981
TransCanada said there were 11 partners; they began withdrawing in 1981. The “last partner not affiliated with TransCanada” withdrew in 1994. Two ANNGTC partners remain, TransCanada PipeLine USA Ltd. and United Alaska Fuels Corp., both indirect, wholly owned subsidiaries of TransCanada Corp.
ANNGTC considered an application under AGIA, TransCanada told the state, but “concluded that the uncertainties created by ANNGTC’s historical contingent liabilities would preclude it from making a viable proposal to be the AGIA licensee. Accordingly, ANNGTC has not made any application and it has played no role in the AGIA application filed by the TransCanada AGIA Applicants.” (The applicants are TransCanada Alaska Co. LLC and Foothills Pipe Lines Ltd., both 100 percent owned by TransCanada Corp. through TransCanada PipeLines Ltd.).
The TransCanada AGIA applicants “are not, and have never been, partners in ANNGTC. They are entirely separate legal entities” with no obligations under the ANNGTC partnership agreement, TransCanada told the state.
The TransCanada AGIA application “does not contemplate the use of any assets” owned by ANNGTC, including the FERC certificate ANNGTC developed under the Alaska Natural Gas Transportation Act or proprietary intellectual property licensed to or developed by ANNGTC, TransCanada said.
TransCanada: no liability
In response to the state’s question about any liability to ANNGTC’s withdrawn partners by the TransCanada AGIA applicants, TransCanada said: “The answer to that question is ‘no’; the TransCanada AGIA Applicants would have no such liability.”
TransCanada said the contingent liabilities to the withdrawn partners “are triggered only if (among other things) the Partnership itself builds the Line contemplated by the Partnership Agreement — namely, the pipeline authorized under ANGTA,” the Alaska Natural Gas Transportation Act.
The company also said remaining partners in ANNGTC have no obligation to pursue the project “and owe no duties to their former partners who have withdrawn from the venture. Furthermore, the Partnership Agreement does not contain any provision that purports to limit the ability of a partner or a former partner — let alone their respective affiliates — to pursue a separate pipeline project.”
Current ultimate parents
The state asked TransCanada to “identify the ultimate parent company for each withdrawn partner” from ANNGTC.
In addition to being the owner of the only two remaining ANNGTC partners, TransCanada PipeLine and United Alaska Fuels, TransCanada is the “ultimate parent company” for three of the withdrawn partners: American Natural Alaskan Co., Pan Alaskan Gas Co. and TETCO Four Inc.
In addition to TransCanada, two other companies who have expressed interest in a current Alaska gas pipeline project are current ultimate parents of withdrawn ANNGTC partners — MidAmerican and Sempra.
The nine withdrawn partners by order of withdrawal are:
• Texas Gas Alaska Corp. withdrew in 1981; its current ultimate parent is Loews Corp.
• American Natural Alaskan Co. withdrew in 1982; its current ultimate parent is TransCanada Corp.
• Northern Arctic Gas Co. withdrew in 1984; its current ultimate parent is MidAmerican Energy Holdings Co.
• Columbia Alaskan Gas Transmission Corp. withdrew in 1984; its current ultimate parent is NiSource Inc.
• Pan Alaskan Gas Co. withdrew in 1984; its current ultimate parent is TransCanada Corp.
• Pacific Interstate Transmission Co. (Arctic) withdrew in 1985; its current ultimate parent is Sempra Energy. TransCanada said it understands that Pacific Interstate transferred its right to any contingent payment for withdrawn partners to a trust for the benefit of the California Public Utility Commission.
• TETCO Four Inc. withdrew in 1989; its current ultimate parent is TransCanada Corp.
• Calaska Energy Co. withdrew in 1993; its current ultimate parent is PG&E Corp.
• Northwest Alaskan Pipeline Co. withdrew in 1994; its current ultimate parent is The Williams Cos. Inc.
Until its withdrawal, Northwest Alaskan Pipeline was the operator of the partnership.
Pre-Build operated by Foothills
The portion of the original proposal that was built is called the Pre-Build. Foothills Pipe Lines operates the line from Caroline, Alberta, to the Saskatchewan-U.S. border near Monchy.
The state asked “whether ANNGTC holds any authorizations under the Northern Pipeline Act or otherwise for any facilities in Canada.” TransCanada said it does not.
The state also asked whether Foothills Pipe Lines Ltd. or any of its subsidiaries holds authorizations under the Alaska Natural Gas Transportation Act for facilities in the United States.
TransCanada said no.
However, United Alaska Fuels Corp., which is an indirect wholly owned subsidiary of Foothills Pipe Lines Ltd., “is one of two partners in ANNGTC.” ANNGTC holds a FERC certificate of public convenience and necessity, a federal right of way and several permits for the Alaska Natural Gas Transportation System. “ANNGTC is neither a co-applicant nor a participant” in the TransCanada-Foothills AGIA application, TransCanada said, and the AGIA applicants “have not used, and do not intend to use, any assets owned” by ANNGTC.
State wants documentation
The state asked TransCanada for documentation showing that withdrawn ANNGTC partners have acknowledged “that there will be no obligation to withdrawn partners if the project” proposed in the AGIA application is constructed and “that any partner withdrawing from that partnership (ANNGTC) forfeits all ownership rights, including past capital contributions.”
TransCanada said there will be no obligations to withdrawn ANNGTC partners if the project proposed under AGIA is put into service.
TransCanada said its position is supported by the ANNGTC general partnership agreement. “We are not aware of any other documentation with or from Withdrawn Partners responsive to this request,” the company told the state.
As for forfeiture of ownership rights upon withdrawal, TransCanada said the ANNGTC agreement provides that withdrawn partners forfeit “all ownership rights in ANNGTC, including any ownership rights it may have had in ANNGTC’s assets, upon withdrawal.”
Withdrawn partners have only those rights specified in section 4.4.4 of the agreement, TransCanada said and “are not entitled to any return of their capital contributions, except that they are entitled to receive a payment equal to their forfeited capital contributions (plus a return at the FERC-approved AFUDC rate) if the ANGTS/ANGTA pipeline constructed by the Partnership ever becomes operational and the Executive Committee of the Partnership determines payment may be made without undue hardship to the Partnership.”
TransCanada said section 7.10 of the partnership agreement “expressly provides in several places that a Withdrawn Partner forfeits all ownership rights, if any, that the Withdrawn Partner might have had in the Partnership’s proprietary intellectual property prior to withdrawal.”
As with the request on obligations to withdrawn partners, TransCanada said that, other than the ANNGTC general partnership agreement and withdrawal letters from withdrawn partners, copies of which were attached to its response to the state, “we are not aware of any other documentation responsive to this request.”
State also requests opinions
The state also requested “all memoranda (internal or otherwise) and opinion letters from inside or outside counsel that TransCanada has received or commissioned evaluating TransCanada’s obligations to withdrawn partners of ANNGTC if the project” proposed under the AGIA application goes into service.
TransCanada said it believes “that no TransCanada entity, including the TransCanada AGIA Applicants, has any potential liability to the Withdrawn Partners,” but said the information the state is requesting — memoranda and opinion letters from inside or outside counsel — “seeks access to privileged and/or confidential communications that cannot be shared with the State without the risk that it could be deemed a waiver. Accordingly, we are unable to supply the State with the documents requested.”
The state also asked what obligations TransCanada and Foothills “and their successors and assigns, would have to the partners of ANNGTC with respect to the AGIA project.”
TransCanada said “None.”
The AGIA applicants and their successors and assigns “do not have any obligations to the Withdrawn Partners of ANNGTC or to the current partners of ANNGTC (both of which are indirect, wholly owned subsidiaries of TransCanada Corporation) with respect to the AGIA project,” TransCanada said.
The state asked TransCanada if it would commit not to include any payments to withdrawn partners of ANNGTC in the tariff.
TransCanada reiterated that “no TransCanada entity, including the TransCanada AGIA Applicants, their successors and assigns, has any obligations that would require any such payment. Nevertheless, in the highly unlikely event that the TransCanada AGIA Applicants or any of their affiliates or subsidiaries were to be somehow required to pay an obligation to a Withdrawn Partner of ANNGTC, the TransCanada AGIA Applicants hereby commit not to include such payment in the rates for the project proposed in their AGIA application.”
