Small Business Participation in the Alaska Natural Gas Pipeline Project

GAO-05-860R: Published: Aug 4, 2005. Publicly Released: Aug 4, 2005.

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William B. Shear
(202) 512-4325


Office of Public Affairs
(202) 512-4800

Alaska currently holds 35 trillion cubic feet of proven recoverable natural gas resources, about 19 percent of total U.S. reserves. Efforts to construct a pipeline to transport this natural gas from Alaska's North Slope to the lower 48 states have been stalled since 1982. The recent increase in natural gas prices has renewed interest in completing the pipeline, a project that is estimated to cost up to $20 billion. In addition to providing access to significant natural gas reserves, some expect the project to generate thousands of jobs and billions of dollars in revenues for the federal government and the State of Alaska. This report responds to a mandate in the Alaska Natural Gas Pipeline Act (the Pipeline Act) that we conduct a study to determine the extent to which small business concerns have participated in the construction of oil and gas pipelines. The Pipeline Act includes a "sense of Congress" provision that the sponsors of the Alaska natural gas pipeline should maximize the participation of small business concerns in contracts and subcontracts awarded for the project. This provision, while setting out a statement of congressional opinion, does not establish a legal requirement for small business participation. We confirmed that this report would focus on small business participation in the Alaska natural gas pipeline. It describes (1) the status of the Alaska natural gas pipeline project and (2) the extent to which any regulatory or oversight structure is in place to monitor small business participation in the construction of the pipeline.

Given the lengthy steps required for state and federal approval of the project, the earliest that construction can begin on the Alaska natural gas pipeline is late 2009. As of June 2005, the State of Alaska had not concluded negotiations with potential project sponsors under the Alaska Stranded Gas Development Act (Stranded Gas Act), which allows the state to negotiate fiscal terms (e.g., taxes and royalties) with project sponsors.4 In addition to being approved by the state, prospective project sponsors must, under the federal Pipeline Act, (1) conduct a study of gas consumption needs and prospective points of delivery within the State of Alaska and (2) hold an open season allowing potential customers to compete for and acquire capacity on the proposed pipeline. Also, the sponsors have been strongly encouraged to submit a prefiling request to FERC. Prefiling allows the sponsors to begin the environmental review process prior to submitting a formal application to FERC. In this way, stakeholders become involved early, issues are identified and resolved, and FERC's statutory deadline for acting on an application to construct the pipeline can be met. After completing the prefiling process, the sponsors must then submit an application to FERC for a certificate of "public convenience and necessity," authorizing construction and operation of the pipeline. Once FERC determines that the application is complete, it then has 20 months to prepare the environmental impact statement and issue a final order granting or denying the application. According to FERC officials, it could take several years to complete the above steps before actual construction of a pipeline can take place, but the beginning of the process is controlled by the project sponsor(s). No structure exists at the federal or state level to monitor small business participation in the construction of the Alaska natural gas pipeline. Although the pipeline will be privately funded, the project sponsors must apply to FERC for a certificate authorizing construction of the pipeline and to DOE if they wish to participate in $18 billion in loan guarantees authorized by the Pipeline Act. According to FERC officials, they typically do not monitor small business participation as part of the permitting process. They noted that FERC does not have expertise on small business matters and that, while FERC could gather the information, other federal agencies such as the Office of Federal Coordinator, created by the Pipeline Act, or SBA might be better situated to do so. According to DOE officials, that agency does not have a legal requirement to track small business participation as part of the loan guarantee process. In the absence of such a requirement, DOE officials stated that their agency has no plans at this time to track small business participation in the pipeline project. Finally, while the Governor of Alaska lists small business participation as one objective for the pipeline project, state officials told us that the State of Alaska does not have a structure in place to monitor or track small business participation. They noted that the state's focus has been on negotiating financial terms with potential sponsors. They also stated that the participation of Alaska businesses (both large and small) and resident hire provisions continue to be issues of discussion with the applicants.

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