GAO-05-860R Alaska Natural Gas Pipeline 

August 4, 2005 

The Honorable Thad Cochran 

Chairman 

The Honorable Robert C. Byrd 

Ranking Minority Member 

Committee on Appropriations 

United States Senate 

The Honorable Jerry Lewis 

Chairman 

The Honorable David R. Obey 

Ranking Minority Member 

Committee on Appropriations 

House of Representatives 

The Honorable Ted Stevens 

Committee on Appropriations 

United States Senate 

Subject: Small Business Participation in the Alaska Natural Gas Pipeline 

Project 

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.1

 

The Pipeline Act includes a “sense of Congress” provision that the sponsors of the 

 

1

Pub. L. No. 108-324, Div. C, § 112, 118 Stat. 1255 (Oct. 13, 2004) (codified at 15 U.S.C. § 720j). The 

Pipeline Act requires GAO to submit a report to Congress no later than 1 year after the date of 

enactment of the act (October 13, 2004) and update the study at least once every 5 years until 

construction of the Alaska natural gas transportation project is completed. 

United States Government Accountability Office

Washington, DC 20548 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 2 

Alaska natural gas pipeline should maximize the participation of small business 

concerns in contracts and subcontracts awarded for the project.2 This provision, 

while setting out a statement of congressional opinion, does not establish a legal 

requirement for small business participation. After consultation with your staff, 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. 

In addressing these objectives, we focused primarily on the federal role in the 

approval and construction phase of the proposed project and, more specifically, in 

the monitoring of small business participation in pipeline construction. We 

reviewed relevant federal laws and regulations. In addition, we interviewed 

Federal Energy Regulatory Commission (FERC), Department of Energy (DOE), and 

Small Business Administration (SBA) officials and analyzed documents they 

provided or referenced. Although the Pipeline Act established the Office of the 

Federal Coordinator for Alaska Natural Gas Transportation Projects (Office of 

Federal Coordinator) as an independent office in the executive branch, a Federal 

Coordinator had not been appointed at the time of our review.3

 As such, we 

contacted DOE in its capacity as the temporary Federal Coordinator. We limited 

our work at the state level to discussions with representatives of Alaska’s 

Governor’s Office and Department of Law. We also contacted representatives of 

several of the potential sponsors of the Alaska natural gas pipeline—

ConocoPhillips, ExxonMobil, and TransCanada—to determine the extent to which 

they routinely track small business participation in pipeline construction. We 

performed our work in Washington, D.C., from January 2005 to June 2005 in 

accordance with generally accepted government auditing standards. 

Results in Brief 

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 

 

2

“Sponsors” refers to the companies that will construct and operate the pipeline. 

3

15 U.S.C. § 720d. The Pipeline Act vested the functions, authorities, duties, and responsibilities of 

the Federal Coordinator in DOE until the latter of the appointment of the Federal Coordinator by 

the President, or 18 months after October 13, 2004—April 13, 2006 (15 U.S.C. § 720d(g)). 

4

Alaska Stat. §§ 43.82.010-43.82.990. 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 3 

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. 

Background 

The Alaska Natural Gas Transportation Act (ANGTA) of 1976 established 

streamlined procedures for the consideration, approval, and construction of a 

natural gas pipeline to bring Alaskan natural gas to the lower 48 states.5

 Under the 

act, the Federal Power Commission (now FERC) was to recommend to the 

President a specific transportation proposal, the President then would submit a 

 

5

15 U.S.C. §§ 719 – 719o. 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 4 

decision and report to Congress, and Congress would vote on the proposal.6 In 

1977, President Carter designated a route that would follow the existing Alaska oil 

pipeline and the Alaska Highway into Canada, proceed through Canada to Alberta, 

and split into two legs continuing to the West and Midwest. Congress approved the 

plan, and FERC issued a conditional certificate to designate project sponsors.7

 

Phase I—1,500 miles of pipeline that transports Canadian gas from Alberta, Canada, 

to Oregon and Iowa—was completed in 1982. Phase II, the Alaska portion of the 

project, was delayed because market conditions made the project commercially 

unfeasible. That is, the expected market value of the natural gas was not 

considered to be sufficient to justify the expected cost of constructing the pipeline 

and transporting the natural gas. 

The recent increase in natural gas prices has renewed interest in constructing an 

Alaskan pipeline. In October 2004, Congress passed the Pipeline Act, which, among 

other things, (1) authorized FERC to consider and act on an application for a 

certificate of public convenience and necessity for an Alaska natural gas 

transportation project other than the Alaska natural gas transportation system 

designated under ANGTA; (2) established an expedited approval process; (3) 

required FERC to issue regulations governing the conduct of open seasons—

periods during which potential customers compete for and acquire capacity on the 

proposed pipeline; (4) created the Office of Federal Coordinator, an independent 

office in the executive branch, to coordinate all federal activities relating to the 

Alaska natural gas transportation project; (5) authorized up to $18 billion in loan 

guarantees for the project; and (6) included a sense of Congress provision that the 

sponsors of the pipeline should maximize the participation of small business 

concerns in contracts and subcontracts awarded for the project.8

The Pipeline Act adopted the Small Business Act’s definition of “small business 

concern” that is set out in 15 U.S.C. § 632(a). This definition provides that small 

business concerns must be independently owned and operated and must not be 

dominant in the applicable field of operation. Further, in addition to these criteria, 

the SBA has statutory authority to establish detailed standards, known as “size 

standards,” that may be based on the number of employees, dollar volume of 

business, net worth, net income, a combination of these factors, or other 

appropriate factors.9

 SBA publishes these size standards, which are almost always 

stated either as the average employment or average annual receipts of a business 

concern and vary by industry. SBA’s size standard for companies that construct oil 

and gas pipelines is $28.5 million in annual receipts.10 SBA’s size standard for 

 

6

15 U.S.C. §§ 719c, 719e, and 719f. 

7

Pub. L. No. 95-198, 91 Stat. 1268 (Nov. 8, 1977). 

8

Pub. L. No. 108-324, Div. C, 118 Stat. 1255 (Oct. 13, 2004) (codified at 15 U.S.C. §§ 720-720n). 

9

15 U.S.C. § 632(a)(2). 

1013 C.F.R. § 121.201, North American Industry Classification System (NAICS) code no. 237120. 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 5 

specialty trade contractors (such as structural steel and precast concrete 

contractors) that may assist in the construction of pipelines is $12 million in annual 

receipts.11

Start of Construction at Least 4 Years Away 

Construction has not yet begun on the Alaska natural gas pipeline. Before 

construction can begin, a number of events must occur. The State of Alaska, under 

its Stranded Gas Act, may negotiate with prospective project sponsors regarding 

fiscal terms (e.g., taxes and royalties) related to the cost of the pipeline. For 

example, the Alaskan administration might negotiate a contract of regular 

payments from pipeline owners in lieu of state and municipal taxes. Through 

negotiations, the legislation is intended to encourage new investment to develop 

Alaskan stranded gas resources by establishing fiscal terms for such investment, 

establish some certainty for calculating taxes and royalties over the life of a 

project, and maximize the benefit to the people of Alaska. Further, under federal 

law, sponsors must (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.12

 

A detailed open season plan must be submitted to FERC.13 Also, the project 

sponsors are 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. Thus, it will involve stakeholders, identify and resolve 

issues early, and ensure that FERC’s statutory deadline for acting on an application 

to construct the pipeline will be met. After completing prefiling, the sponsors may 

submit an application to FERC for a certificate of “public convenience and 

necessity” authorizing construction and operation of the pipeline.14 Once FERC 

determines that the application is complete, it has 20 months to prepare the 

environmental impact statement and issue a final order granting or denying the 

application. 

As of June 2005, three groups had submitted applications under the Stranded Gas 

Act expressing interest in constructing the pipeline and begun negotiations with the 

 

11Id., NAICS code no. 238120. 

1215 U.S.C. § 720a(e) and (g); and 18 C.F.R. § 157.33. Moreover, the Pipeline Act required FERC to 

issue regulations governing the conduct of open seasons for capacity on proposals for Alaska 

natural gas projects. 15 U.S.C. § 720a(e)(2). FERC issued these regulations in February 2005. See 

70 Fed. Reg. 8269 (Feb. 18, 2005) (codified at 18 C.F.R. §§ 157.30 – 157.39). On June 1, 2005, FERC 

issued Order No. 2005-A that reaffirmed, revised, and clarified its rules establishing requirements 

governing the conduct of open seasons for capacity for future Alaska natural gas pipeline projects, 

effective June 16, 2005. See 70 Fed. Reg. 35011 (June 16, 2005). 

1318 C.F.R. § 157.38. 

14In their application, the sponsors must show that the proposed project is or will be required by the 

present or future public convenience and necessity. 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 6 

State of Alaska: (1) a consortium of three oil and gas producers—BP Exploration 

(Alaska) Inc., ConocoPhillips Alaska, Inc., and ExxonMobil Alaska Production Inc.; 

(2) the TransCanada Corporation, a Canadian-based energy company that focuses 

on gas transmission; and (3) the Alaska Gasline Port Authority, a municipal port 

authority formed by the North Slope Borough, Fairbanks North Star Borough, and 

the City of Valdez. As shown in figure 1, the earliest projected date for construction 

to start is late 2009. 

Figure 1: Projected Time Line for FERC Action on Approval of the Alaska Natural Gas Pipeline Project 

2005 2006 2007 2008 2009

December:

State of Alaska completes 

negotiations with prospective 

project sponsors

September:

Project sponsors

complete their open 

season

December:

Project sponsors 

complete

the prefiling 

process and 

submit a complete 

formal application 

for a certificate of 

public convenience 

to FERC

December:

FERC issues 

a draft 

environmental 

impact 

statement

August:

FERC issues 

a final order 

granting or 

denying the 

application

June:

FERC issues a 

final environmental 

impact statement

March:

Project sponsors file their 

open season plan with 

FERC (including submission 

of an in-state needs study) 

and start conducting the 

open season

June:

Project sponsors submit

a prefiling request to FERC

Source: FERC staff.

No Structure Is in Place to Track Small Business Participation in the 

Pipeline Project 

No federal or state regulatory or oversight structure exists specifically to monitor 

small business participation in the construction of the Alaska natural gas pipeline. 

According to FERC officials, they typically do not monitor small business 

participation as part of the permitting process. While indicating that FERC could 

gather the information, the officials noted that other federal agencies such as SBA 

or the Office of Federal Coordinator might be better suited to do so, particularly 

because FERC does not have small business expertise. When regulating pipelines, 

FERC typically focuses on protecting the environment, ensuring that the pipeline is 

designed correctly and operated safely, and requiring open access at just and 

reasonable rates. According to DOE officials, that agency does not have a legal 

requirement to track small business participation in the pipeline as part of the loan 

guarantee process. The officials told us that, as a result, their agency does not have 

plans at this time to track small business participation in the project.15 Similarly, 

because it will not involve federal procurement, SBA officials told us that their 

agency has no plans to track small business participation in the project. However, 

they noted that, if required, SBA would provide assistance to any interested party 

concerning ways of tracking and increasing small business participation for the 

project. 

 

15In May 2005, DOE published a notice of inquiry seeking comments and information from the public 

to assist it in developing regulations implementing the loan guarantee provisions in the Pipeline Act. 

The information requested included questions regarding collateral and monitoring and reporting 

requirements. See 70 Fed. Reg. 30707 (May 27, 2005). 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 7 

As is the case at the federal level, no one at the state or project level currently has a 

structure in place to track small business participation. According to 

representatives of the Governor’s Office, the Governor of Alaska includes small 

business participation among the project objectives. However, the state does not 

have a mechanism in place to track small business participation in the construction 

of the pipeline. The officials 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. Additionally, none of the potential 

sponsors that we interviewed has developed a tracking system specifically for the 

Alaska natural gas pipeline project. However, according to one company’s officials, 

they typically track their use of small businesses and report it for internal purposes. 

The officials added that, if they were required to track small business participation 

in the construction of the pipeline from the start of the project, they could track 

and share information on small business participation in their contracts and 

subcontracts. They stressed that there would be no way to track every aspect of 

small business participation because of the sheer magnitude of the project. 

Representatives of another potential sponsor told us that they track similar 

information and, therefore, it would not be difficult for them to add a tracking 

requirement regarding use of small businesses. In contrast, a representative of a 

third potential sponsor noted that the company would be concerned about a 

tracking requirement because it is their policy to minimize the number of 

constraints they place on their prime contractors. 

Although no monitoring structures are in place for the pipeline project, the federal 

government has created regulatory and oversight systems to track or oversee 

similar private contracting initiatives. For instance, ANGTA included an equal 

opportunity requirement that was directed to federal agencies and authorized the 

appointment of a Federal Inspector to, among other things, monitor compliance 

with applicable laws and other requirements.16 Specifically, ANGTA required that 

all federal officers and agencies take such affirmative action as was necessary to 

assure that no person—on the grounds of race, creed, color, national origin, or 

sex—be excluded from receiving or participating in any activity conducted under 

any certificate, permit, right-of-way, lease, or other authorization granted or issued 

pursuant to the act. The implementing regulations stated that (1) each certificate 

(including the certificate of public convenience and necessity issued by FERC), 

permit, right-of-way, lease, or other federal authorization must include an equal 

opportunity clause and (2) the project sponsors and certain contractors and 

 

16See 15 U.S.C. § 719o (equal opportunity requirement); and 15 U.S.C. § 719e(a)(5) (repealed 1992) 

(appointment of Federal Inspector). Effective July 1, 1979, the President created the Office of the 

Federal Inspector for Construction of the Alaska Natural Gas Transportation System (Office of the 

Federal Inspector), which was headed by the Federal Inspector. 5 U.S.C. App. 1, Reorg. Plan No. 1 

of 1979 (also set out under 15 U.S.C. § 719e). The Federal Inspector had exclusive responsibility for 

enforcement of all federal laws relevant in any manner to pre-construction, construction, and initial 

operation of the pipeline. The position and office were abolished in 1992. Pub. L. No. 102-486, Title 

XXX, § 3012, 106 Stat. 2776 (Oct. 24, 1992). 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 8 

subcontractors must have affirmative action plans.17 These entities also were 

required to submit compliance reports.18 Finally, the Office of the Federal 

Inspector (similar to the Office of Federal Coordinator created under the Pipeline 

Act) was responsible for tracking compliance, including compliance with the equal 

opportunity and affirmative action requirements. 

As another example, the United States and Canada reached an agreement that 

required the companies approved to build the Alaska natural gas pipeline to report 

information on bidders they proposed to supply certain goods and services. In 

1977, the two countries reached an agreement on Principles Applicable to a 

Northern Natural Gas Pipeline where they would endeavor to ensure that the 

supply of goods and services to the Alaska gas pipeline would be on generally 

competitive terms. In 1980, the two countries entered into a procurement 

procedures agreement outlining procedures designed to ensure procurement on a 

generally competitive basis for the Alaska gas pipeline. The agreement stated that 

the appropriate regulatory authority in each country (the Office of the Federal 

Inspector in the United States and the Northern Pipeline Agency in Canada) would 

be responsible for implementing the procedures. For example, the procedures 

included a requirement that the project companies submit a list of qualified bidders 

they proposed to invite to tender bids on certain items subject to the agreement 

(e.g., line pipe and pipe fittings) to the appropriate domestic regulatory authority. 

The regulatory authority of the other country would have the opportunity to review 

the bidders’ list and propose the addition of any firms that it considered should also 

be invited to tender bids. 

Observations 

Congress expressed the opinion (in a sense of Congress) that the sponsors of the 

Alaska natural gas pipeline should maximize the participation of small business 

concerns in contracts and subcontracts awarded in carrying out the project, but no 

federal structure has been designated or currently exists to track small business 

participation in the proposed project. The federal agencies currently involved in 

the pipeline project, FERC and DOE, cited limited roles in the process or lack of 

small business expertise. While we cannot quantify the costs the federal 

government and sponsors would face to monitor small business participation, 

federal precedents for monitoring private contracting initiatives exist. For 

example, under ANGTA the federal government created an office to monitor, 

among other things, equal opportunity compliance. Further, the Pipeline Act 

established the Office of Federal Coordinator to coordinate all federal activities 

relating to the project. The Federal Coordinator, once appointed, would be 

uniquely situated to work with federal and state agencies on monitoring the extent 

of small business participation in the pipeline’s construction. However, we note 

 

1743 C.F.R. § 34.6 and 43 C.F.R. § 34.8. The regulations required each ANGTA contractor and 

subcontractor with 50 or more employees and with a contract of $1 million or more and certain 

contract bidders to have an affirmative action plan. 

1843 C.F.R. § 34.9. 
GAO-05-860R Alaska Natural Gas Pipeline 

Page 9 

the concerns of project sponsors who, while generally able to obtain and report 

information on small business contracting, may not be able to capture all levels of 

small business participation because of the magnitude of the project. 

Agency Comments 

We provided a draft of this report to DOE, FERC, and SBA for their review and 

comment. All three agencies provided technical comments, which we have 

incorporated where appropriate. 

- - - - - 

We are sending copies of this report to the Secretary of Energy, Chairman of the 

Federal Energy Regulatory Commission, Administrator of the Small Business 

Administration, and interested congressional committees. We also will make 

copies available to other interested parties upon request. In addition, the report 

will be made available at no charge on the GAO Web site at http://www.gao.gov. 

Please contact me at (202) 512-8678 or shearw@gao.gov if you or your staff have 

any questions about this report. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. Other 

major contributors to this report were Harry Medina, Paige Smith, Linda Rego, and 

Barbara Roesmann. 

William B. Shear 

Director, Financial Markets and 

 Community Investment 

(250232) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER