SB 136: "An Act relating to noncompetitive leases of state land and for rights-of-way for oil or natural gas pipelines that originate and terminate within the state and to the regulation and certification of those pipelines; relating to conditional certification for certain new natural gas pipelines; relating to definitions of "common carrier" and "firm transportation service" in the Pipeline Act."
00 SENATE BILL NO. 136 01 "An Act relating to noncompetitive leases of state land and for rights-of-way for oil or 02 natural gas pipelines that originate and terminate within the state and to the regulation 03 and certification of those pipelines; relating to conditional certification for certain new 04 natural gas pipelines; relating to definitions of "common carrier" and "firm 05 transportation service" in the Pipeline Act." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07 * Section 1. AS 38.05.180(bb)(1) is amended to read: 08 (1) "gas or electric utility" includes an electric cooperative organized 09 under AS 10.25, a municipal utility, and a gas or electric utility regulated under 10 AS 42.05; provided that, if the contract gas is transmitted to consumers through a 11 pipeline and the gas utility either owns the pipeline or is related in ownership to the 12 owner of the pipeline, then the gas utility qualifies as a "gas or electric utility" within 13 the meaning of this paragraph only if it is bound or agrees to be bound by the
01 covenants set out in AS 38.35.120 and 38.35.121, as applicable; 02 * Sec. 2. AS 38.35.100(d) is amended to read: 03 (d) The commissioner shall include in a conditional lease each requirement 04 and condition of the covenants established under AS 38.35.120 and 38.35.121, as 05 applicable. The commissioner may also require that the lessee agree to additional 06 conditions that the commissioner finds to be in the public interest. In place of the 07 covenant established under AS 38.35.120(a)(9), the commissioner shall require the 08 lessee to agree that it will not transfer, assign, pledge, or dispose of in any manner, 09 directly or indirectly, its interest in a conditional right-of-way lease or a pipeline 10 subject to the conditional lease, unless the commissioner, after considering the public 11 interest and issuing written findings to substantiate a decision to allow the transfer, 12 authorizes the transfer. The commissioner shall also require the lessee to agree not to 13 allow the transfer of control of the lessee without the approval of the commissioner; as 14 used in this subsection, "transfer of control of the lessee" means the transfer of 30 15 percent or more, in the aggregate, of ownership interest in the lessee in one or more 16 transactions to one or more persons by one or more persons. 17 * Sec. 3. AS 38.35 is amended by adding a new section to read: 18 Sec. 38.35.121. Additional covenants required to be included in leases for 19 natural gas pipelines that originate and terminate within the state. In addition to 20 the covenants required by AS 38.35.120, a noncompetitive lease of state land for a 21 right-of-way for a natural gas pipeline valued at $1,000,000 or more and that 22 originates and terminates within the state may be granted only upon the condition that 23 the lessee expressly covenants in the lease, in consideration of the rights acquired by it 24 under the lease, that it will 25 (1) commit that after the first binding open season, the lessee will 26 assess the market demand for additional pipeline capacity at least every two years 27 through public nonbinding solicitations or similar means; the solicitations or similar 28 means must 29 (A) be conducted at least every two years after the conclusion 30 of the first binding open season; 31 (B) be public and provide at least 30 days' prior public notice
01 of each nonbinding solicitation or similar means through methods reasonably 02 calculated to simultaneously notify all interested parties, including postings on 03 Internet websites, press releases, direct mail notification, and other advertising; 04 (C) set out the next reasonable engineering increment of 05 capacity, consistent with this chapter; 06 (D) contain the lessee's good faith estimate of regulated tariff 07 rates for the next reasonable engineering increment of capacity as well as a 08 larger expansion utilizing rolled-in rates to the levels required by this chapter; 09 (E) set out a good faith estimate of how long it will take to 10 place into service the next reasonable engineering increment of capacity; 11 (F) contain provisions that permit creditworthy prospective 12 shippers to make binding commitments for expansion capacity in a binding 13 open season to be conducted promptly by the lessee subsequent to the 14 nonbinding solicitation or similar means; in this subparagraph a shipper is 15 deemed creditworthy if 16 (i) the shipper satisfies the creditworthiness standards 17 for the project's applicable tariffs; or 18 (ii) for expressions of interest and expansions initiated 19 before the regulatory approval of the creditworthiness standards of the 20 project's tariff, creditworthiness is determined according to the 21 standards that the lessee applies in its initial binding open season; and 22 (G) commit to promptly and diligently pursue a binding open 23 season for expansion capacity to the extent that expressions of interest 24 demonstrate a market demand on commercially reasonable terms by 25 creditworthy shippers that equals or exceeds the next reasonable engineering 26 increment of capacity; in this subparagraph, "promptly and diligently pursue a 27 binding open season" means that the lessee will act in a manner that is 28 commercially reasonable in the gas pipeline industry in this state regarding 29 timing and execution of relevant actions; 30 (2) commit that in a binding open season, or in any other solicitation of 31 shipping commitment, the lessee will not require
01 (A) a prospective shipper to agree to any particular rate other 02 than the regulated tariff rate; or 03 (B) an existing shipper to pay any rate for a capacity expansion 04 before the date that new expansion facilities go into service; 05 (3) commit to promptly and diligently pursue all regulatory approvals 06 upon the receipt of acceptable binding commitments for expansion capacity, and 07 commit to promptly and diligently proceed to expand the project at a reasonable 08 engineering increment sufficient to satisfy all demand for expansion capacity so long 09 as additional revenue from existing transportation contracts on the project, plus the 10 projected revenue from binding expansion capacity commitments, cover the costs of 11 the expansion, including fuel costs and a reasonable return on capital as authorized by 12 the Regulatory Commission of Alaska, and the lessee's ability to recover the costs of 13 existing facilities is not impaired; in this paragraph, "promptly and diligently pursue" 14 regulatory approvals and expansion capacity means that the lessee shall act in a 15 manner that is commercially reasonable in the gas pipeline industry in the United 16 States regarding timing and execution of relevant actions; 17 (4) commit to file, as part of its tariff, its determination of the 18 reasonable engineering increment of capacity based on the design of the project before 19 project sanction and each time the design capacity of the project changes due to 20 modifications of the facilities or operation of the pipeline, other than normal day-to- 21 day changes in pipeline operations; 22 (5) commit to expand the proposed project in reasonable engineering 23 increments and on commercially reasonable terms that encourage exploration and 24 development of gas resources in this state; 25 (6) commit that the lessee 26 (A) will propose and support the recovery of capacity 27 expansion costs, including fuel costs, from all system users through rolled-in 28 rates as provided in (B) and (C) of this paragraph or through a combination of 29 incremental and rolled-in rates as provided in (D) of this paragraph; 30 (B) will propose and support the recovery of capacity 31 expansion costs, including fuel costs, from all system users through rolled-in
01 rates; a lessee is obligated under this subparagraph only if the rolled-in rates 02 would increase the rates 03 (i) not described in (ii) of this subparagraph by not more 04 than 15 percent above the initial maximum recourse rates for capacity 05 acquired before commercial operations commence; in this sub- 06 subparagraph, "initial maximum recourse rates" means the highest cost- 07 based rates for any specific transportation service set by the Regulatory 08 Commission of Alaska when the pipeline commences commercial 09 operations; 10 (ii) by not more than 15 percent above the negotiated 11 rate for pipeline capacity on the date of commencement of commercial 12 operations where the holder of the capacity is not an affiliate of the 13 owner of the pipeline project; in this sub-subparagraph, "negotiated 14 rate" means the rate in a transportation service agreement that provides 15 for a rate that varies from the otherwise applicable cost-based rate, or 16 recourse rate, set out in a gas pipeline's tariff approved by the 17 Regulatory Commission of Alaska; or 18 (iii) for capacity acquired in an expansion after 19 commercial operations commence, to a level that is not more than 115 20 percent of the volume-weighted average of all rates collected by the 21 project owner for pipeline capacity on the date commercial operations 22 commence; 23 (C) will, if recovery of capacity expansion costs, including fuel 24 costs, through rolled-in rate treatment would increase the rates for capacity 25 described in (B) of this paragraph, propose and support the partial roll-in of 26 expansion costs, including fuel costs, to the extent that rates acquired before 27 commercial operations commence do not exceed the levels described in (B) of 28 this paragraph; 29 (D) may, for the recovery of capacity expansion costs, 30 including fuel costs, that, under rolled-in rate treatment, would result in rates 31 that exceed the level in (B) of this paragraph, propose and support the recovery
01 of those costs through any combination of incremental and rolled-in rates; 02 (E) will not enter into a contractual agreement that would 03 preclude the lessee from collecting from any shipper, including a shipper with 04 a contractual rate agreement, the rolled-in rates that are required to be proposed 05 and supported by the lessee under (B) of this paragraph or the partial rolled-in 06 rates that are required to be proposed and supported by the lessee under (C) of 07 this paragraph; and 08 (F) will propose and support rates that will bear the same 09 percentage change to all rates consistent with this section, including any term- 10 differentiated rates; 11 (7) commit to offer distance-sensitive rates to delivery points in the 12 state; 13 (8) to the maximum extent permitted by law, commit to 14 (A) hire qualified residents from throughout the state for 15 management, engineering, construction, operations, maintenance, and other 16 positions on the proposed project; 17 (B) contract with businesses located in the state; 18 (C) establish hiring facilities or use existing hiring facilities in 19 the state; and 20 (D) use, as far as is practicable, the job centers and associated 21 services operated by the Department of Labor and Workforce Development 22 and an Internet-based labor exchange system operated by the state; 23 (9) commit to negotiate, before construction, a project labor agreement 24 to the maximum extent permitted by law; in this paragraph, "project labor agreement" 25 means a comprehensive collective bargaining agreement between the licensee or its 26 agent and the appropriate labor representatives to ensure expedited construction with 27 labor stability for the project by qualified residents of the state; and 28 (10) commit that it will be regulated under AS 42.06 by the Regulatory 29 Commission of Alaska. 30 * Sec. 4. AS 38.35.230 is amended by adding new paragraphs to read: 31 (11) "commercially reasonable terms" means that revenue from
01 transportation contracts covers the cost of the expansion, including increased fuel 02 costs and a reasonable return on capital as authorized by the Regulatory Commission 03 of Alaska, as applicable, and there is no impairment of the project's ability to recover 04 the costs of existing facilities; 05 (12) "reasonable engineering increment" means the amount of the 06 additional capacity that could be added by compression or a pipe addition of a length 07 that is at least a full valve section based on the original pipeline mainline valve 08 locations using a compressor size or pipe size, as applicable, that is substantially 09 similar to the original compressor size or pipe size. 10 * Sec. 5. AS 42.06.240(f) is amended to read: 11 (f) Except if right-of-way lease covenants required by AS 38.35.120 - 12 38.35.121 provide otherwise, in [IN] addition to other requirements of (a) - (e) of this 13 section, the provisions of this subsection apply to a certificate of public convenience 14 and necessity for a North Slope natural gas pipeline carrier or person that will be a 15 North Slope natural gas pipeline carrier under this chapter: 16 (1) the person making application shall dedicate a portion of the 17 pipeline's initial capacity sufficient to transport the total volume of North Slope natural 18 gas that has been committed by producers and shippers of North Slope natural gas to 19 tendering for intrastate firm transportation service at the time that the operation of the 20 North Slope natural gas pipeline commences; 21 (2) upon receipt of the certificate application under this subsection, the 22 commission shall issue a public notice inviting prospective intrastate shippers of North 23 Slope natural gas to file requests for service; a request for service submitted by a 24 shipper in response to a notice issued under this paragraph must include a proof of the 25 shipper's commitment to use the North Slope natural gas pipeline for intrastate firm 26 transportation service, specifying the volume of North Slope natural gas that the 27 shipper will tender for initial intrastate firm transportation service; 28 (3) in its review of an application submitted under this subsection, 29 (A) for purposes of evaluating the total volume of intrastate 30 transportation of North Slope natural gas to be accepted for initial intrastate 31 transportation, the commission shall determine total volume based upon
01 written commitments to tender North Slope natural gas for intrastate firm 02 transportation service continuously for a period of not less than three years 03 after the operation of the North Slope natural gas pipeline commences as 04 follows: 05 (i) each request for service by an intrastate shipper that 06 is a public utility, as that term is defined in AS 42.05.990, for the 07 purpose of furnishing natural gas for ultimate consumption within the 08 state by its customers that individually consume an average annual 09 volume of less than 20,000,000 standard cubic feet of gas per day shall 10 be supported by a written commitment by the public utility that sets out 11 the utility's best current estimate of the average annual volume that the 12 utility will require during the three-year period; 13 (ii) each request for service by an intrastate shipper that 14 is not a public utility, as that term is defined in AS 42.05.990, and each 15 request for service by a public utility for the purpose of furnishing 16 natural gas for ultimate consumption within the state by a customer that 17 individually consumes an average annual volume of 20,000,000 or 18 more standard cubic feet of gas per day, that purchases North Slope 19 natural gas from a North Slope natural gas producer, must be supported 20 by one or more contracts for the purchase of the North Slope natural 21 gas on a take-or-pay basis that extends for a period of not less than 22 three years after the operation of the North Slope natural gas pipeline 23 commences; 24 (iii) the commission may consider peak volumes 25 specified in the written commitments of North Slope natural gas 26 producers and purchase contracts; and 27 (B) the commission shall set out in its order granting a 28 certificate of public convenience and necessity the total volume of intrastate 29 North Slope natural gas that the North Slope natural gas pipeline carrier shall 30 accept for intrastate transportation; the total volume may not exceed the 31 volume substantiated by written commitments and contracts that comply with
01 the requirements of this chapter; 02 (4) if the North Slope natural gas pipeline carrier wants to transport 03 North Slope natural gas within the state in excess of the amount set out in the 04 statement of total volume in the pipeline carrier's certificate of public convenience and 05 necessity, the pipeline carrier may apply for authority to transport a greater volume of 06 North Slope natural gas within the state than the carrier is required by the commission 07 to transport in its order entered under (3)(B) of this subsection; the commission shall 08 grant the authority requested by the pipeline carrier if the commission determines that 09 the pipeline carrier's transportation of a greater volume is consistent with public 10 convenience and necessity. 11 * Sec. 6. AS 42.06 is amended by adding a new section to read: 12 Sec. 42.06.275. Conditional certificate. (a) If an applicant for a new natural 13 gas pipeline has not obtained or committed financing, or does not possess firm 14 commitments for the transportation of natural gas on its proposed pipeline, the 15 commission shall issue a conditional certificate if it finds that 16 (1) the applicant has otherwise met the requirements of AS 42.06.270; 17 and 18 (2) construction of the new natural gas pipeline would be in the public 19 interest. 20 (b) The commission may specify the conditions on which the conditional 21 certificate is issued, including a limitation on the duration of the conditional 22 certificate. 23 (c) If the commission subsequently finds, on application or its own motion, 24 that all conditions placed on the conditional certificate have been satisfied, the 25 commission shall issue a certificate under AS 42.06.270. 26 * Sec. 7. AS 42.06.310 is amended by adding a new subsection to read: 27 (e) Notwithstanding (d) of this section, a North Slope natural gas pipeline 28 carrier that transports North Slope natural gas exclusively between any point within 29 the state and another point within the state shall, when ordered by the commission, 30 extend or enlarge its pipeline or storage facilities under the standards set out in 31 AS 38.35.121.
01 * Sec. 8. AS 42.06.630(6) is amended to read: 02 (6) "firm transportation service" means service by a natural gas 03 pipeline carrier that is not subject to a prior claim by another shipper or another class 04 of service and is not subject to reduction unless the pipeline's overall capacity is 05 diminished; service constitutes "firm transportation service" if the service receives the 06 same priority as any other class of firm transportation service. 07 * Sec. 9. AS 42.06.630 is amended by adding a new paragraph to read: 08 (20) "common carrier," with respect to natural gas pipelines, includes a 09 common carrier that offers to all shippers both firm transportation service and 10 interruptible transportation service. 11 * Sec. 10. This Act takes effect immediately under AS 01.10.070(c).