Bidding process for Palin's pipeline was flawed

updated 5:51 p.m. ET Oct. 25, 2008

ANCHORAGE, Alaska - Gov. Sarah Palin's signature accomplishment — a contract to build a 1,715-mile pipeline to bring natural gas from Alaska to the Lower 48 — emerged from a flawed bidding process that narrowed the field to a company with ties to her administration, an Associated Press investigation shows.

Beginning at the Republican National Convention, the McCain-Palin ticket has touted the pipeline as an example of how it would help America achieve energy independence.

"We're building a nearly $40 billion natural gas pipeline, which is North America's largest and most expensive infrastructure project ever, to flow those sources of energy into hungry markets," Palin said during the Oct. 2 vice presidential debate.

Despite Palin's boast of a smart and fair bidding process, the AP found that her team crafted terms that favored only a few independent pipeline companies and ultimately benefited the winner, TransCanada Corp.

And contrary to the ballyhoo, there's no guarantee the pipeline will ever be built; at a minimum, any project is years away, as TransCanada must first overcome major financial and regulatory hurdles.

In interviews and a review of records, the AP found:

• Instead of creating a process that would attract many potential builders, Palin slanted the terms away from an important group — the global energy giants that own the rights to the gas.
• Despite promises and legal guidance not to talk directly with potential bidders, Palin had meetings or phone calls with nearly every major candidate, including TransCanada.
• The leader of Palin's pipeline team had been a partner at a lobbying firm where she worked on behalf of a TransCanada subsidiary. Also, that woman's former business partner at the lobbying firm was TransCanada's lead private lobbyist on the pipeline deal, interacting with legislators in the weeks before the vote to grant TransCanada the contract. Plus, a former TransCanada executive served as an outside consultant to Palin's pipeline team.
• Under a different set of rules four years earlier, TransCanada had offered to build the pipeline without a state subsidy; under Palin, the company could receive a maximum $500 million.
• "Gov. Palin held firmly to her fundamental belief that Alaska could best serve Alaskans and the nation's interests by pursuing a competitive approach to building a natural gas pipeline," said McCain-Palin spokesman Taylor Griffin. "There was an open and transparent process that subjected the decision to extensive public scrutiny and due diligence."

Only one viable bidder
There were never more than a few players that could execute such a complex undertaking — at least a million tons of steel stretching across some of Earth's most hostile and remote terrain.

TransCanada estimates it will cost $26 billion; Palin's consultants estimate nearly $40 billion.

Siobhan Dooley / AP

The pipeline would run from Alaska's North Slope to Alberta in Canada; secondary supply lines would take the gas to various points in the United States and Canada. The pipeline would carry 4.5 billion cubic feet of natural gas daily, about 8 percent of the present U.S. market.

Building such a pipeline had been a dream for decades. The rising cost and demand for energy injected new urgency into the proposal.

So too did the depletion of Alaska's long-reliable reserves of oil, which are trapped in the same Arctic Circle reservoirs as clean-burning natural gas. Not only does that oil provide jobs, it pays for an annual dividend check to nearly every Alaska resident. This year's payment was $2,069, 25 percent higher than 2007 — plus a $1,200 bonus rebate to help offset higher energy costs.

Palin was elected as governor two years ago in part because of her populist appeal. Promising "New Energy for Alaska," she vowed to take on Exxon Mobil Corp., ConocoPhillips and BP, the multinational energy companies that long dominated the state's biggest industry.

Oil interests were particularly unpopular at that moment: Federal agents had recently raided the offices of six lawmakers in a Justice Department investigation into whether an Alaska oil services company paid bribes in exchange for promoting a new taxing formula that would ultimately further the multinationals' pipeline plans.

Palin ousted fellow Republican Gov. Frank Murkowski, who pushed a pipeline deal he negotiated in secret with the "Big Three" energy companies. That deal went nowhere.

With Alaskans eager for progress and sour on Big Oil, Palin tackled the pipeline issue with gusto, meeting with representatives from all sides and assembling her own team of experts to draw up terms.

Palin invited bidders to submit applications and offered the multimillion-dollar subsidy. Members of Palin's team say that without the incentive, it might not have received any bids for the risky undertaking.

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