REPORT ON SOCIOECONOMIC IMPACTS

PREFACE

This report is one of several written by agencies of the Federal Government on various issues pertinent to the President's decision on the alternative Alaska natural gas systems. Section 6(a) of the Alaska Natural Gas Transportation Act of 1976 specifies that the Federal agencies must submit by July 1, 1977 any information useful to the President supplementing that contained in the Federal Power Commission Recommendation of May 2, 1977.

This report contains comments on the socioeconomic impact analyses submitted to the Federal Power Commission during its proceedings, and on the Commission Recommendation itself. The purpose of the analyses in the report is to present and discuss some important factors which appear to be significant enough for consideration in the President's overall decision. Given this specific purpose and the massive amount of evidence which has accumulated in the past three years, this report is not intended to be a comprehensive review or an analysis independent of previous work. Detailed questions must be referred to documents such as the Socioeconomic Briefs filed with the FPC, the Interior Department Final Environmental Impact Statement, the Berger Inquiry Report, Judge Litt's Decision, or the Commission Recommendation.

This report was prepared by Ernest S. Ting, Office of Coastal Zone Management, National Oceanic and Atmospheric Administration at the request of Dr. Edward Miller, Acting Deputy Assistant Secretary for Energy and Strategic Resource Policy.

THE COMMISSION RECOMMENDATION, MAY 2, 1977

The Federal Power Commission's overall conclusion was that the socioeconomic impacts of the pipeline proposals "offer little guidance for the final choice among the competing applicants."

In the Commission's view the socioeconomic benefits from any of the three proposals are "overwhelming" and are largely independent of the exact route. The primary benefits which were identified by Judge Litt and quoted by the Commission are the large sums received by the State of Alaska in the form of royalty gas payments and severence taxes. Also among the benefits cited were revenues from property taxes, and personal and corporate income taxes. The Commission notes that these benefits will be accompanied by increased public expenditures, but claims that such expenditures will stimulate economic activity and improve the "general economic well-being of Alaska." 2 Nevertheless, the Commission warns that "substantial social and economic disloca

1 Federal Power Commission, "Recommendation to the President," May 1, 1977, p. VI-27. 2 "Recommendation to the President," p. I-31.

countries have made binding, reciprocal commitments to non-interference.

The Agreement does not bar real property taxes by either provinces or states. However, under the provisions of the British North American Act and the terms of the Agreement, the provinces would be prevented from taxing the throughput of pipelines or levying discriminatory charges on transit pipelines. The Federal Government of Canada has accepted the obligation to ensure that the exercise of the taxing power of the provinces shall be applied in a non-discriminatory

manner.

In the United States, where a ratified treaty becomes the supreme law of the land, the U.S. Federal Government has the authority to prevent states from discriminating against transit pipelines and is committed to do so by the Agreement.

Whether discrimination against a transit pipeline exists is determined by comparison with similar pipelnes. The Agreement provdes that "similar" pipelines include both inter-provincial and inter-state pipelines and intra-provincial and intra-state pipelines. This definition is sufficiently broad to assure that an adequate basis for comparison can be found within the jurisdictions which would be involved if a trans-Canadian route for Alaskan gas is approved.

The hydrocarbons moving through a transit pipeline are accorded the equivalent of "in bond" treatment under the terms of the Agreement and may not be taxed by provincial, state, or Federal authorities in either country.

The non-discrimination protections contained in the Agrement prevent the imposition of taxes on transit pipelines which are not also applicable to similar, non-transit pipelines. Therefore, the Agreement assures that transit pipelines will not be taxed in a discriminatory manner to generate funds for the settlement of native claims.

The United States-Canada Transit Pipeline Agreement does not settle all issues related to a trans-Canadian pipeline for Alaskan natural gas. Rather, the Agreement provides fundamental guarantees and a framework for the terms and conditions which would be applicable. If Canada decides to offer an overland route, further discussions with the Government of Canada will be needed to answer specific questions related to financing arrangements, pipeline tariffs, expansion of the pipeline's capacity, requirements for purchasing goods and services in Canada, the possibility of construction delays, and arrangements for inspection of the pipeline.

Financing

The question of financing a trans-Canadian pipeline for Alaskan gas has not been formally discussed with the Government of Canada. If an overland route is offered by Canada, and if it is necessary for either Government to participate in financing, financial arrangements could be dealt with in a protocol to the United States-Canada Transit Pipeline Agreement.

Impact on United States-Canadian Relations

The United States and Canada have a long tradition of cooperation on mutually beneficial projects, such as the Saint Lawrence Seaway, the Alaskan Highway, the environmental clean-up of the Great Lakes, and the transpotration of Canadian hydrocarbons across the United States. A decision to construct a trans-Canadian pipeline for Alaskan

7. In terms of the distribution of benefits and costs among regions of the United States, and particularly between Alaska and the lower 48 States, where does the public interest lie? Is it in the public interest to subsidize the economic development of Alaska at the cost to lower 48 States of a higher delivered-gas price?

SUMMARIES OF POSITIONS AND EVIDENCE OF INTERESTED PARTIES

APPLICANTS

1. Alaskan Arctic Gas Pipeline Company

In its extensive brief, Arctic maintains that its proposal is the most beneficial to the State of Alaska since it will provide large benefits and cause the least socioeconomic cost. This assessment is based on the assertion that the major socioeconomic benefits from any pipeline project will be from severence taxes and royalties, and that such benefits are roughly equal for all three projects."

Arctic further states that since its system has only a relatively short section in Alaska, and that section is in the much less accessible northern portion of the State, the impacts of the Arctic Gas System on public facilities and services will be much less than the impacts of the El Paso and Alcan systems. The magnitude of the population effects is smaller, fewer communities in the State of Alaska are affected, and prospective inmigration by out-of-state job seekers is discouraged by the inaccessibility and seasonal construction schedule of the North Slope.

Arctic responds to the contention that the other two proposals provide greater benefits to the Alaskan economy because of their greater lengths in Alaska by characterizing the severance tax and royalty revenues as primary in magnitude and as long-term benefits as opposed to short-term construction employment.7

Excerpts from the Arctic socioeconomic brief illustrate the con-tentions. "Compared to severance taxes and royalties, all other benefits to the state will be transitory and miniscule. (T) he importance of gas-related employment is . . . negligible . . . Other revenues, i.e., property tax and corporate income tax revenues, are said to be small; personal income tax revenues important only for the relatively short period of construction.

The Arctic Gas System is the only proposal which would not provide the possibility of delivering royalty gas for use in Southern Alaska. Arctic discounts any benefits claimed by the State of Alaska from industrial development induced by the intrastate availability of North Slope natural gas, alleging that the State has not been able to present any solid evidence either on the basis of past experience in Cook Inlet or firm expressions of industry interest that such industrial uses will occur. In addition, Arctic notes that possibility of an exchange agreement in which Cook Inlet gas could be provided in Southern Alaska in return for North Slope royalty gas.

Brief of Arctic Gas Project on Socioeconomic Issues, p. 2.

Arctic points out that if the gas transportation costs are lowest with the Arctic system, as projected, and if wellhead prices are deregulated. severance tax and royalty income to Alaska may actually be largest with the Arctic system.

Dr. David Kresge, Tr. 33.709-33,710.

8 Brief of Arctic Gas Project on Socioeconomic Issues, pp. 12-13.

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7. In terms of the distribution of benefits and costs among regions of the United States, and particularly between Alaska and the lower 48 States, where does the public interest lie? Is it in the public interest to subsidize the economic development of Alaska at the cost to lower 48 States of a higher delivered-gas price?

SUMMARIES OF POSITIONS AND EVIDENCE OF INTERESTED PARTIES

APPLICANTS

1. Alaskan Arctic Gas Pipeline Company

In its extensive brief, Arctic maintains that its proposal is the most beneficial to the State of Alaska since it will provide large benefits and cause the least socioeconomic cost. This assessment is based on the assertion that the major socioeconomic benefits from any pipeline project will be from severence taxes and royalties, and that such benefits are roughly equal for all three projects."

Arctic further states that since its system has only a relatively short section in Alaska, and that section is in the much less accessible northern portion of the State, the impacts of the Arctic Gas System on public facilities and services will be much less than the impacts of the El Paso and Alcan systems. The magnitude of the population effects is smaller, fewer communities in the State of Alaska are affected, and prospective inmigration by out-of-state job seekers is discouraged by the inaccessibility and seasonal construction schedule of the North Slope.

Arctic responds to the contention that the other two proposals provide greater benefits to the Alaskan economy because of their greater lengths in Alaska by characterizing the severance tax and royalty revenues as primary in magnitude and as long-term benefits as opposed to short-term construction employment.7

Excerpts from the Arctic socioeconomic brief illustrate the contentions. "Compared to severance taxes and royalties, all other benefits to the state will be transitory and miniscule. (T)he importance of gas-related employment is . . . negligible . . . Other revenues, i.e., property tax and corporate income tax revenues, are said to be small; personal income tax revenues important only for the relatively short period of construction.

The Arctic Gas System is the only proposal which would not provide the possibility of delivering royalty gas for use in Southern Alaska. Arctic discounts any benefits claimed by the State of Alaska from industrial development induced by the intrastate availability of North Slope natural gas, alleging that the State has not been able to present any solid evidence either on the basis of past experience in Cook Inlet or firm expressions of industry interest that such industrial uses will occur. In addition, Arctic notes that possibility of an exchange agreement in which Cook Inlet gas could be provided in Southern Alaska in return for North Slope royalty gas.

Brief of Arctic Gas Project on Socioeconomic Issues, p. 2.

Arctic points out that if the gas transportation costs are lowest with the Arctic system, as projected, and if wellhead prices are deregulated. severance tax and royalty income to Alaska may actually be largest with the Arctic system.

7 Dr. David Kresge, Tr. 33.709-33,710.

8 Brief of Arctic Gas Project on Socioeconomic Issues, pp. 12-13.

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