UPDATED: Condé Nast Portfolio's Dishonest Hit Piece on Gov. Palin and AGIA; Quote from Conde Nast Editor included

The Alaska Dispatch reports on a dishonest hit piece written by Joe McGinniss slated to appear in Condé Nast Portfolio later this week:

Longtime Alaskans will remember McGinniss for his book, Going to Extremes, which chronicled the state and its residents during the 1970s oil boom. McGinniss returned to Alaska in November to report for Portfolio, a hip business magazine, about Palin and the proposed TransCanada gas pipeline and the Canadian company's agreement with the state.

Based on a press release by Portfolio to promote its April issue, it appears McGinniss' article is highly critical of Palin's efforts: "...McGinniss finds that not only is the pipeline not being built, but Palin herself is the biggest obstacle in its path."

Below is the release, along with an email response from Palin spokesman Bill McAllister. (Do read on...Palin and Exxon had a meeting the other week...)

But first, to set the stage, here are a few pipeline observations that are often forgotten now that Palin is a political superstar with enemies:

We all know Palin has taken a lot of heat on the gas pipeline. But let us not forget that state Democrats supported her efforts on AGIA and TransCanada. So did many Republicans. This was before Aug. 29, before Palin landed on the national stage. BP and Conoco did not pursue their so-called Denali pipeline until the Palin administration and Legislature were already on the AGIA path. This has led some to speculate that it was AGIA and Palin's tough stance that prompted BP and Conoco to get moving on their long-dormant project. (For more on this, read this Newsweek story I wrote last June.)

The Dispatch provides an excerpt of the McGinnis article and then an interesting email exchange with Mr. Bill about it.

First the McGinnis excerpt:

CONDÉ NAST PORTFOLIO ON SARAH PALIN, BIG OIL, AND THE PIPELINE TO NOWHERE

New York-Joe McGinniss, bestselling author of Going to Extremes, a nonfiction account of his year in Alaska, returns to the state in search of the $40 billion natural gas pipeline that Sarah Palin has said she is building. But McGinniss finds that not only is the pipeline not being built, but Palin herself is the biggest obstacle in its path. ("Pipe Dreams" p. 50). "Everything she is doing is the opposite of ‘Drill, baby, drill,' " former governor of Alaska Tony Knowles tells McGinniss. Despite pressure from the Obama administration to get pipeline construction underway, the prospect of its ever being built looks dimmer by the day. McGinniss reports how Palin has virtually ignored the pipeline issue since returning to Alaska in November to focus instead on her 2012 presidential campaign strategy. McGinniss notes her absence from major oil-company summits, and hears from a rising chorus of critics, including some of her former supporters. Alaska Republican Mike Hawker tells McGinniss, "The only thing standing in the way of an Alaska gas pipeline is the Sarah Palin administration." Palin's biggest blunder? Locking the state into an exclusive contract with a Canadian pipeline company (TransCanada) that has no access to Alaska's natural gas. Now BP and ConocoPhillips--two companies that do have gas--have launched a rival project. McGinniss writes that despite her repeated claims that she'd already gotten the project underway "What Palin had done... was contrive to pay as much as $500 million to a foreign company to look into the possibility of someday building a line." Since the election, the price of oil and gas has continued to plummet and Alaska's budget deficit has soared. McGinniss argues that Palin's $500 million commitment to TransCanada looks increasingly like money wasted. Even Hal Kvisle, the CEO of TransCanada, concedes, "I don't know whether we're going to see this [pipeline] get built or not."

I'll let Mr. Bill handle the criticism about the Governor's involvement. But let me take a stab at the outright falsehoods McGinniss writes about AGIA.

McGinniss writes:

What Palin had done... was contrive to pay as much as $500 million to a foreign company to look into the possibility of someday building a line.

This is complete nonsense. The phrase "to look into the possibility of someday building a line" is such an outrageous lie that it makes my blood boil. Anyone who has sat down and read the AGIA legislation would know that it sets out clear concrete deadlines in order to insure that the project moves forward. It calls for an open season within 36 months of the license signing and has "date certain" requirements for FERC applications. If any of the clear stipulations are not adhered to, then all bets are off and Alaska does not suffer. TransCanada has to deliver.

Did McGinniss even read the AGIA Special Sessions Executive Summary? If he did, he would have learned:

After a license is awarded [for the natural gas pipeline], the licensee [TransCanada] must complete an application to the Federal Energy Regulatory Commission or Regulatory Commission of Alaska. The licensee must sanction the project within a year of receiving a certificate from the Federal Energy Regulatory Commission if it has adequate financing. If necessary, the licensee has an additional four years to obtain financing or transfer the certificate, and all associated work product, to another licensee designated by the state.

If the project becomes uneconomic after the license is awarded, AGIA describes a process for relinquishing the license that will enable the state to recover the benefit of its investment in the project by issuing another licensee. To encourage the licensee to commit to spend funds building the pipeline, the state agrees that if it provides financial benefits to another group to encourage the construction of a competing pipeline project after the license is issued, the licensee is entitled to recover three times the amount it spent on the project from the state.

So the state gets to revoke the license if the licensee doesn't deliver, and the licensee gets to triple its investment if the state provided financial encouragement to a competing pipeline. So the state is staying out of the Denali deal while TransCanada is on target. If TransCanada bombs out, the state can negotiate with Denali to offer them the $500 million if BP and ConocoPhillips agrees to the AGIA stipulations about expansion and availability to all producers.

McGinniss seems to suggest that a producer owned pipeline is the way to go. He apparently hasn't been paying attention to all the problems Alaska has encountered since he was last there during the building of the trans-Alaska oil pipeline.

In "Sarah Takes On Big Oil," Kay Cashman and Kristen Nelson provide background on the monopoly issue vis-à-vis the oil pipeline:

Until recent years BP, ConocoPhillips and ExxonMobil had kept tariffs (tolls) on the trans-Alaska oil pipeline high enough to keep out other oil companies, except in the form of minority interests in their North Slope fields. As a result, they controlled all the oilfield facilities and related pipelines in northern Alaska. Their production companies had to pay the same per-barrel tariff as other companies, but they could essentially get their profit back on the other end because it was their pipeline subsidiaries that owned the oil line and the service company that operated it, Alyeska Pipeline Service Co.

Even Conoco, before it merged with Phillips (which had bought ARCO Alaska's assets) had left the state after discovering and developing an oil field, complaining that the oil tariff charged by the owners of the trans-Alaska oil pipeline was unnecessarily high and made it impossible for other companies to make a reasonable profit on northern Alaska fields, especially compared to elsewhere in North America and the world.

Conoco developed the Milne Point oil field but pulled out of the state in January 1994 after selling the field ot BP.

In 1994 Conoco and Tesoro began -- and Tesoro, Anadarko Petroleum, Flint Hills and the State of Alaska continued -- successful legal action against the owners of the trans-Alaska oil pipeline. Their efforts eventually led to a reduction in intrastate oil (oil that was used in Alaska) tariffs in 2004. A 2008 ruling by the Federal Energy Regulatory Commission, or FERC, led to a reduction in interstate tariffs retroactive to 2005.

As of September 2008, the tariff battle was still being waged and would likely see higher court action. But the owners of the trans-Alaska oil pipeline appeared to be losing and would likely have to refund hundreds of millions of dollars in overcharges and pay additional state taxes because the lower the tariff rate, the more the state collects in taxes.

As governor, and while she was campaigning for governor, Palin expressed concern about the Big 3 owning the gas line because of their actions as owners of the oil pipeline.

The 2008 FERC ruling, she said in June 2008, supported the idea that an independent pipeline company, and not the Big 3, would be the preferred builder of the proposed gas pipeline.

"This decision shows how having a pipeline constructed and operated by the producers can result in inflated tariff rates that cause the State of Alaska significant revenue losses and discourage others who do not own a share of the pipeline from developing the state's resources," Palin said as governor.

Defending corporatism -- which is what people who claim that the state needs to roll over for big business are doing -- is not free market capitalism. Free market capitalism is all about competition, which is what AGIA calls for. A non-producer owned pipeline prevents any one single producer from a) keeping the pipeline tariffs (or tolls) prohibitively high, b) unfairly manipulating the scheduling of deliveries, and c) blocking future resource development by refusing to expand to new fields controlled by their competitors. Producer owner pipelines lead to monopolies. AGIA was designed to prevent that.

Now, let's hear what Mr. Bill had to say about this ill sourced hit piece. The Dispatch reports:

Here is Bill McAllister's emailed response to the McGinniss press release:

It seems to expect people to be surprised by the fact that the pipeline is not under construction. That's not much of an "aha." Obviously, anyone paying attention knows this will be years in the making.

"Palin has virtually ignored the pipeline issue since returning to Alaska in November to focus instead on her 2012 presidential campaign strategy." Show me one shred of proof for either part of that statement. The governor had a nearly daylong meeting with her gas line team the week after the election, and of course those consultations have continued. In early December, she arranged an event in Fairbanks to present the AGIA license to TransCanada. She has gas line-related funding requests pending before both the Congress and the Legislature. This is "ignoring"?

McGinniss notes "her absence from major oil-company summits." She had Exxon in her office last week. Not sure what his point is there.

McGinnis calls AGIA a blunder, but every lawmaker but one voted for it, and a majority voted to stay the course over a year later and give TransCanada a shot. The governor campaigned in 2006 on getting Alaska's terms for its gas, in contrast to the Murkowski contract that ceded tax sovereignty, judicial sovereignty and regulatory sovereignty. AGIA was a game-changer, a new paradigm.

*****

And here's a follow-up exchange between Alaska Dispatch and McAllister about the Palin-Exxon meeting:

Alaska Dispatch: Gov. Palin met with Exxon? Can you tell me more about that meeting and the date it occurred? Why did she meet with Exxon? For Pt. Thomson? The gas line? Something else? What was the result of the meeting?

McAllister: I don't have details. I just saw them go into her office. I didn't ask her about it afterward. But hey, that wasn't the first time since the election. That's what's so off-base about McGinnis. He obviously doesn't have a clue what she does.

Of course, The Dispatch wants to know what that meeting with Exxon was about, and so do we.

And yet another chapter concludes in "As the Natural Gas Pipeline Turns." Stay tuned for more...

UPDATE by RAM: (h/t DougB) Looks like McGinniss has always been a hack.

UPDATE by VO: Women's Wear Daily spoke with Portfolio's editor-in-chief, Joanne Lipman, about the article. This quote from an e-mail by Lipman told me all I needed to know about the magazine's editorial attitude:

“We’ve been breathlessly following the saga of Bristol and Levi, too, but alas, you won’t read about that in the pages of Portfolio :).”

Replying to a question about a pipeline story with snark about the misfortune of teenage parents, punctuated with a "smiley"? How professional and compassionate of you, Ms. Lipman.