Legislature(2011 - 2012)HOUSE FINANCE 519
03/21/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB359 | |
| HB361 | |
| HB9 | |
| HB296 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 296 | TELECONFERENCED | |
| + | HB 359 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 361 | TELECONFERENCED | |
| += | HB 9 | TELECONFERENCED | |
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline
Development Team to report to the legislature
recommended changes to state law that are required to
enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so
that the in- state natural gas pipeline is operational
before 2016; and providing for an effective date."
3:14:43 PM
Co-Chair Stoltze addressed amendments to the legislation.
Representative Gara MOVED to ADOPT Amendment 1, 27-
LS0075\K.1 (Bullock, 3/16/12):
Page 4, following line 4:
Insert new subsections to read:
"(b) Notwithstanding the powers granted to the
Alaska Gasline Development Corporation by (a) of
this section and granted by the Alaska Housing
Finance Corporation, the Alaska Gasline
Development Corporation may not proceed with the
construction of an in-state natural gas pipeline
if the Alaska Gasline Development Corporation
determines, after a full and objective study,
that one or more of the following options provide
a greater benefit to the state than an in-state
natural gas pipeline constructed by the Alaska
Gasline Development Corporation:
(1) continuing to develop a natural gas
pipeline capable of transporting not less
than 3,000,000,000 cubic feet of natural gas
a day, but only if the Alaska Gasline
Development Corporation finds there are
adequate natural gas resources in the Cook
Inlet sedimentary basin that may be
economically produced to meet in-state
demand;
(2) delivering natural gas and propane
produced in the state by a means other than
the development and construction of an in-
state natural gas pipeline by the Alaska
Gasline Development Corporation, but only if
the Alaska Gasline Development Corporation
finds that the alternative means for
delivering natural gas and propane are less
expensive than the construction of an in-
state natural gas pipeline;
(3) continuing to develop a natural gas
pipeline capable of transporting not less
than 3,000,000,000 cubic feet of gas a day
if the Alaska Gasline Development
Corporation finds that the development of
the larger capacity pipeline would deliver
cheaper natural gas to markets in the state
and provide the state with greater revenue
when compared to an in-state natural gas
pipeline developed and constructed by the
Alaska Gasline Development Corporation;
(4) delivering natural gas by truck to the
Fairbanks North Star Borough and subsidizing
facilities for delivering propane to rural
communities in the state that are not
connected to the state's contiguous road
system if those alternatives are more cost-
effective than the development and
construction of an in-state natural gas
pipeline by the Alaska Gasline Development
Corporation.
(c) During development of the in-state natural
gas pipeline and before the start of construction
of an in-state natural gas pipeline, the Alaska
Gasline Development Corporation shall determine
whether a natural gas pipeline capable of
delivering 3,000,000,000 cubic feet of natural
gas a day or more from the North Slope to market
is a viable project. If the Alaska Gasline
Development Corporation determines that a natural
gas pipeline capable of delivering 3,000,000,000
cubic feet of natural gas a day or more from the
North Slope to market remains a viable project
and there is an adequate supply of marketable
natural gas in Cook Inlet to meet natural gas
demand in the Railbelt, the Alaska Gasline
Development Corporation shall research and
consider whether a small-diameter natural gas
pipeline from Cook Inlet to the Fairbanks area
could be built to deliver natural gas at a
reasonably economic cost. If the Alaska Gasline
Development Corporation finds that a small-
diameter natural gas pipeline from Cook Inlet to
the Fairbanks area could be built to deliver
natural gas at a reasonably economic cost under
the circumstances described in this subsection,
the Alaska Gasline Development Corporation shall
stop the development of an in-state natural gas
pipeline from the North Slope and study the
viability of a small-diameter natural gas
pipeline from Cook Inlet to the Fairbanks area."
Reletter the following subsections accordingly.
Page 5, line 15:
Delete "(c) and (d)"
Insert "(e) and (f)"
Co-Chair Stoltze OBJECTED.
Representative Gara explained that Amendment 1 went to the
"crux" of his concerns about the bill. He discussed that
Alaskans were interested in the cheapest gas available and
did not want the state to make a decision that would result
in more expensive gas. He calculated that by the time the
gas reached Asia the gas would be approximately $16 to $17
if a .5 billion cubic feet (bcf) gasline was built. He
listed costs contained within in his calculation including,
a $7.75 tariff to Big Lake, approximately $2.00 for
transportation to Nikiski, $2.00 for the price of gas, the
cost of conditioning the gas at an LNG facility (the cost
was not known, but at some facilities it was between $3 to
$4 per million cubic feet (mcf)), and shipping to Asia
could be approximately $1.00 to $1.50. He expounded that
the gas would also be expensive for Anchorage consumers;
with a 250 mcf line, gas to Anchorage consumers would cost
$13.82 plus $2.00 for distribution by the Enstar system.
Representative Gara remarked that the state may get to the
point where the proposal in the bill was the only option;
however, Amendment 1 proposed that the Alaska Gasline
Development Corporation (AGDC) should make sure that it was
necessary to move forward with the option. The amendment
required the agency to assess whether it agreed with the
U.S. Geological Survey findings that there were adequate
stores of Cook Inlet natural gas to tide the state over.
The question that arose was whether the cheapest way to get
gas to Fairbanks was a bullet-line north if there was
adequate gas in Cook Inlet. He opined that adequate stores
in Cook Inlet would probably result in cheaper gas for
Southcentral than the proposed bullet-line. He referred to
a proposal in Fairbanks that would truck natural gas from
the North Slope to Fairbanks that would cost between $11
and $16 per mcf; he surmised that it could be smarter to
subsidize the Fairbanks proposal at a much lower cost
versus the cost of the proposal in HB 9.
Representative Gara expounded that the amendment would
require AGDC to determine whether there were less expensive
options than the project in HB 9 that would cost $400
million to reach project sanction and $7 billion to build
the gasline. He opined that the project would result in
expensive gas for Alaskans and that a study had not been
conducted to determine whether cheaper options were
available. He stated that the ultimate goal of the bullet-
line was to ship gas to Asia, but based on all of the
information, a large line would result in less expensive
gas to Asia and Alaskans and increased gas development and
jobs on the North Slope. He relayed that the tariff for a
large line was between $1 and $2 versus $7 to $9 for the
smaller line. He did not believe the state should "jump off
the diving board" on what could be a very important option
if the other options were not feasible. He believed the
bill constituted a $400 million bet that all of the better
options would fail.
3:20:41 PM
REPRESENTATIVE MIKE CHENAULT, SPONSOR, referred to the USGS
and gas that was "yet to be found" in Alaska. He stated
that there was a large difference between gas that was yet
to be found and actual gas production. He furthered that in
1995 the USGS estimated that there was 2.14 [trillion cubic
feet (tcf)] of gas that may be recoverable in Cook Inlet;
the number had changed to 19 tcf. He did not believe anyone
knew whether the gas was there. He questioned what
formation the gas was in and what the development cost
would be if the gas existed. He referred to a recent gas
find in Cook Inlet; he was proud that the drilling
companies were working in the area. He and Representative
Mike Hawker had worked hard in recent years to incentivize
companies to work in Cook Inlet. The recent find involved
one well, drilled into a formation at 8,000 feet; there had
been no testing done and he believed no mud logs had been
taken. He stated that there had been no way to know what
was there without knowing specifics about an area and
developing a formula to determine the amount of gas.
Representative Chenault hoped gas was found because anyone
living on the gas distribution system was faced with
potential rolling brownouts. He referred to television ads
in the area that indicated whether people could expect to
lose power or needed to conserve energy. He stressed that
Cook Inlet was running low on gas reserves. He recommended
that people talk to Enstar and Chugach to find out how long
gas supplies would last. He recalled that in the past
companies had believed there was oil in certain areas that
ended up being dry. He remembered the Sunfish discovery
that had amounted to nothing; it had involved initial
projections of four or five platforms, millions of barrels
of oil, gas, and thousands of jobs. He was concerned about
a long-term energy supply for Alaska. He pointed to items
in the amendment related to the study of a 3 billion cubic
feet (bcf) per day gasline and gas transportation from
Prudhoe Bay to Fairbanks or other. He relayed that some of
the information was currently in proposed legislation.
3:25:29 PM
Representative Chenault queried whether the state was going
to make people wait until the state determined whether the
proposed line was large enough or until a study was
conducted. He opined that AGDC had not been set up as a
study group. The organization had been formed to look at a
project that met the current Alaska Gasline Inducement Act
(AGIA) process. He believed that telling the agency that it
needed to study a 3 bcf per day line would invoke "treble
damages" and was going against what some members of the
legislature had felt was the right way to go at a certain
time period. He stated that the current system only allowed
a 500 bcf per day line. He would like to see a larger line,
but the state had put the constraints upon itself. He
remarked that he could pick legislators out who had
supported and continued to support the system at the cost
of gas to Alaskans.
Representative Chenault agreed that a 3 bcf per day line
would be less expensive than the one proposed in the bill.
He did not agree with Amendment 1. He believed that waiting
to build a line from Cook Inlet to Fairbanks would do
Fairbanks more harm; he stressed his desire to get gas to
the community. He opined that the state would have to
import foreign LNG if gas in Cook Inlet continued to
decline, which would make gas in the Fairbanks area the
most expensive in the world due to LNG import and tariff
costs. He felt passionate about the direction the bill was
headed; it was not everything he wanted because he would
like to see a larger line. He could not predict whether a
larger line would be built. He stated that the project was
currently the only one that would bring gas from the North
Slope to tidewater and if the legislature continued to stop
projects from moving forward it would be doing the state a
disservice. He cited from a poll that 48 percent of those
polled believed Alaska did not have a gasline because of
leadership. He emphasized that leadership "had a bad habit
of getting in the way of moving projects forward." He
stated that Alaskans were ready to make a move and were
willing to pay to subsidize a pipeline if needed.
3:30:03 PM
Representative Chenault relayed that the proposed
legislation would not subsidize a pipeline. He stated that
Alaskans were tired of not having gas. He opined that the
state could wait for the largest pipeline to come along; he
could argue that a 48 inch line was not the best investment
because a 52 inch line would be better, but he opined that
it was necessary to live in the real world related to what
was possible.
REPRESENTATIVE MIKE HAWKER, CO-SPONSOR, endorsed
Representative Chenault's comments.
Representative Gara responded that Amendment 1 did not
violate AGIA. He explained that the bill was built under
current law and the amendment did not seek to change the
law; AGIA specified that a pipeline larger than .5 bcf
could not be built without changing the law. The 3 bcf
pipeline in the amendment was an AGIA pipeline. He opined
that the problem with the current bill was that it assumed
there was an export market to Asia through Nikiski and it
would also produce very expensive gas. He suggested
building the AGIA line to Valdez if there was an export
market to Asia; a bigger line would provide cheaper gas to
Alaskans and Asia. He pointed to work the governor was
currently doing with the major three oil companies on the
concept of a gasline to Valdez. He stated that a large line
would produce roughly 50 percent cheaper gas; the cost of
gas would be roughly $16 under the current bill. He
reiterated his earlier testimony that a larger line would
create more jobs, more North Slope development and cheaper
gas for Alaskans. He stressed that the proposed line would
not work without a "massive" subsidy in the billions of
dollars if the market did not exist in Asia. He opined that
without the export the line became half the size, which
would cost Alaskans $17 to $18 per million cubic feet (mcf)
of gas. He believed less expensive options had to exist. He
remarked that utilities had repeatedly said that the
rolling brownout concern was related to the gas delivery
system in Southcentral Alaska and not gas supply.
3:34:27 PM
Representative Chenault responded that there was a gas
delivery problem, but there was also a gas shortage issue.
He wondered why gas storage construction was underway if
there was not a gas shortage issue; the gas storage was in
place to ensure that gas was available on the coldest days.
He stated that if the gas was not available on the coldest
days that it did equate to a gas shortage.
Representative Gara agreed that the storage facilities
would ease the problems in Cook Inlet, but he did not
believe that the state had reached the point that it needed
to pass legislation that would spend $400 million for
expensive gas. He surmised that the state may reach the
point in the future; however, he believed there should be a
chance to build a "better, cheaper line that gets Alaskans
cheaper gas."
A ROLL Call was taken on Amendment 1.
IN FAVOR: Gara, Guttenberg
OPPOSED: Costello, Doogan, Fairclough, Joule, Neuman,
Stoltze, Thomas
The MOTION FAILED (7-2).
Co-Chair Thomas MOVED Amendment 2, 27-LS0075\K.2 (Bullock,
3/16/12):
Page 6, lines 24 -28:
Delete "certain information may not be disclosed
without impairing the rights of a third party to
maintain the confidentiality of the information,
the state agency may require the Alaska Gasline
Development Corporation to obtain the consent of
the third party before the state agency transfers
that information"
Insert "a law or provision of a contract to which
the state agency is a party requires the state
agency to preserve the confidentiality of the
information and that delivering the information
to the Alaska Gasline Development Corporation
would violate the confidentiality provision of
that law or contract, the state agency shall
identify the applicable law or contract provision
to the Alaska Gasline Development Corporation and
may require the Alaska Gasline Development
Corporation to obtain the consent of the person
who has the right to waive the confidentiality of
the information under the applicable law or
contract provision before the state agency
transfers the information to the Alaska Gasline
Development Corporation"
Co-Chair Stoltze OBJECTED for discussion.
TOM WRIGHT, STAFF, REPRESENTATIVE MIKE CHENAULT, explained
that Amendment 2 had been recommended by the Department of
Law and AGDC. The amendment would allow state information
to be made available to AGDC from another state agency; if
the information belonged to a third-party, AGDC would be
required to obtain permission from that party to view the
confidential information.
Representative Gara remarked that there was no limitation
in the amendment regarding what type of information would
remain confidential. The language "certain information" was
not defined and could mean any information. He believed the
amendment allowed third parties to determine what
information they could choose to keep from the public. He
opined that without a better definition of what information
would be kept private, the public would not have access to
information that may be important on items like cost, fair
prices, and feasibility. He requested a more in-depth
definition of "certain information" if one existed.
3:38:08 PM
Mr. Wright replied that the information was proprietary and
confidential. He reiterated that a third party's consent
would be required for AGDC to obtain the information from a
state agency. He added that some of the information would
be available to the public; information labeled proprietary
or confidential would not be made available.
Representative Gara noted that he had misread Amendment 2
and understood that the "certain information" portion would
be deleted. He stated that proprietary information language
the amendment would insert upheld his concerns that a
third-party could limit the information available to the
public.
Representative Doogan remarked that he did not have a
problem with Amendment 2, but he did not understand it. He
asked for verification that the state agency with access to
third-party information would be required to obtain consent
from the third-party prior to releasing it to AGDC.
Mr. Wright read from the amendment:
A law or provision of a contract to which the state
agency is a party requires the state agency to
preserve the confidentiality of the information and
that delivering the information to the Alaska Gasline
Development Corporation would violate the
confidentiality provision of that law or contract...
Mr. Wright explained that the information was already
confidential or proprietary; in order for AGDC to obtain
the information third-party consent was required.
JOHN HUTCHINS, ASSISTANT ATTORNEY GENERAL, OIL, GAS AND
MINING SECTION, CIVIL DIVISION, DEPARTMENT OF LAW,
clarified that Amendment 2 applied to information that was
required to be kept confidential by current law (AS
38.05.035 allowed applicants to submit information to the
Department of Natural Resources under a promise of
confidentiality) and by contract. He elaborated that most
of the information could not be used by the state to
support a competing project and was used to evaluate the
application. The current bill language could be interpreted
as repealing the statute as applicable to AGDC; therefore
the amendment was aimed at clarifying that AGDC would have
access to the information only with a third party's
consent.
Co-Chair Stoltze asked whether there were similar
provisions under the AGIA contract. Mr. Hutchinson replied
in the negative.
3:42:35 PM
Representative Hawker reiterated that the language in
Amendment 2 had been recommended by DOL.
Representative Guttenberg believed the public and the
legislature had a right to have information available. He
asked for verification that a state agency could not
divulge information that was designated by a third-party as
confidential even if the information was public in another
location.
Mr. Hutchinson replied state agencies did not have any
obligation to keep information private that was already in
the public domain. He added that the confidential
information was primarily engineering and financial data;
under current law companies were entitled to request that
the state keep the information confidential.
Co-Chair Stoltze WITHDREW his OBJECTION.
Representative Gara OBJECTED to Amendment 2. He voiced that
under the legislation the state would pay $400 million to
get the project to project sanction. He believed that a
company should be required to release engineering
information that the state was essentially buying.
A ROLL Call was taken on Amendment 2.
IN FAVOR: Neuman, Costello, Doogan, Fairclough, Joule,
Stoltze, Thomas
OPPOSED: Gara, Guttenberg
The MOTION PASSED (7-2). There being NO further OBJECTION,
Amendment 2 was ADOPTED.
Co-Chair Thomas MOVED Amendment 3, 27-LS0075\K.15 (Bullock,
3/19/12) [Due to the length of the amendment it is not
included in the minutes; a copy is available on file and on
BASIS].
Co-Chair Stoltze OBJECTED.
3:45:51 PM
Representative Hawker explained that Amendment 3
represented the single greatest policy addition to the
legislation; it created a framework for regulation under
the Regulatory Commission of Alaska (RCA) for an instate
gas pipeline authorized to operate as a contract carrier.
The amendment replaced the existing components that
exempted an instate pipeline from regulation under the
common carrier statutes of the public utilities and the
Alaska Pipeline Act.
RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER, provided
a detailed description of Amendment 3 that replaced
Sections 25 through 27 in HB 9, version K. The sections had
exempted an AGDC instate natural gasline from regulation
under RCA as a public utility and as an Alaska Pipeline Act
pipeline for common carriers. The amendment created a
structure that allowed for regulation under the RCA as a
contract carrier. There was a change to the title that
would specifically state that the bill related to the
regulation of an instate gas pipeline authorized to provide
transportation as a contract carrier. The language "provide
transportation of natural gas by way of contract carriage"
was inserted on page 4, line 4 of the legislation following
the word "corporation." The language added a fifth ability
to allow AGDC to provide contract carriage; the AGDC
gasline would then apply specifically to the contract
carriage section.
Ms. Delbridge pointed to Section 6 of the bill related to
the Right-of-Way Leasing Act and the exemption of an AGDC
line from several covenants including covenant 7, which
stated "it will construct and operate the pipeline in
accordance with applicable state laws and lawful
regulations and orders of the Regulatory Commission of
Alaska." The exemption had only been necessary if the
pipeline would have been exempt from RCA oversight; the
amendment called for RCA oversight; therefore, it removed
the exemption. She pointed to a conforming change on page
9, lines 13 to 14 related to the removal of the exemption
from covenant 7.
Ms. Delbridge directed attention to page 1, line 23 of
Amendment 3 that provided the new regulatory structure. The
new Section 25 of the bill would amend the RCA's decision
making procedures to add a new regulatory chapter AS 42.08
to the list of chapters the RCA was able to administrate.
The new Section 26 added a new section to the Alaska Public
Utilities Regulatory Act. She elaborated that the contract
carrier line would be regulated under AS 42.08 and needed
to tie into the way RCA looked at public utility contracts
under AS 42.05. The section worked to establish a link by
allowing the RCA to include a covenant in contracts between
a utility and AGDC that would enable the utility to pass on
its costs in rates charged to consumers; the RCA approval
of the contract with AGDC and the public utility would make
the covenant enforceable. The amendment worked to
accommodate utilities that were not shippers that decided
to buy gas shipped by another entity or to store gas it
bought off of a line in order to keep any RCA filings
related to the pipeline moving in a timely fashion. She
furthered that the RCA would be required to review the
utility contracts to determine whether they were "just and
reasonable" in a 180-day time period.
Ms. Delbridge discussed that the Amendment 3 exempted an
AGDC line from the two existing avenues the RCA had to
regulate a gas pipeline (as a public utility or common
carrier pipeline under the Pipeline Act). She relayed that
the RCA regulated pipelines on a cost-based formula where
rates and tariffs were regulated. Sponsors wanted to make
contracts work that they believed could be entered into
freely by two parties; therefore, under the amendment the
RCA would review the pipeline contracts for fairness, but
would not regulate the rates and tariffs. Sponsors had
wanted backstops included in the bill; therefore, the new
regulatory section required all precedent agreement
contracts that came out of an open season between AGDC and
shippers to be submitted to the RCA. The RCA would have 180
days (a typical timeframe for similar items) to decide
whether a contract had been done fairly and without fraud;
the contract would be automatically approved if the agency
failed to make a decision within the designated time limit.
3:54:11 PM
Ms. Delbridge continued to discuss Amendment 3. A
Certificate of Public Convenience and Necessity (CPCN) was
required that would allow for the operation and
construction of the pipeline. Some of the requirements that
the RCA would normally investigate in a CPCN would be
concluded by the legislature. The RCA typically looked at a
project to determine whether it was in the public
convenience and necessity; the amendment designated that
the passage of the bill would be sufficient evidence that
the project was in the public convenience and necessity. An
applicant's proposal was also considered for its fitness,
willingness, and ability. The amendment stipulated that
through the creation of AGDC, the legislature had
determined that the corporation was willing and able to do
its work. The RCA would determine whether an operator had
sufficient technical capability to operate a pipeline and
provide service. There were a number of RCA empowerments
that enabled the commission to conduct its day-to-day
business; the regulatory empowerments were repeated
throughout statutes and included items such as standard
decision making procedures and the ability to expedite its
adjudication of matters. The commission's annual report
would need to include any actions it had taken related to
AS 42.08.
Ms. Delbridge addressed that Amendment 3 built backstops
into the legislation. The RCA traditionally played a role
in dispute resolution (in addition to its role in approving
a project); the amendment would require that AGDC provide a
dispute resolution mechanism within its contracts. She
noted that although there were alternatives to a regulatory
body conducting dispute resolution (i.e. adjudication or
arbitration panel), the amendment allowed two parties to
agree on a way to resolve future disputes. She observed
that there was always a risk of dispute resolution method
failure; the RCA would intervene if a dispute resolution
failed and prevented a public utility from getting the gas
thereby posing a threat to the public's safety and welfare.
She discussed future unknown items such as expansions and
interconnections that the RCA typically would take a
detailed role in managing; the commission would be involved
in situation where other parties may want to buy capacity
in an expansion or be involved in an interconnection.
3:58:45 PM
Ms. Delbridge asked whether she should go through Amendment
3 section-by-section.
Representative Doogan responded in the affirmative.
Ms. Delbridge relayed that legal counsel was available for
any detailed regulatory or RCA questions. She pointed to
lines 21-23 on page 1 of Amendment 3 where Section 25 of
the new structure amended the RCA's decision making
procedures. A new chapter was added for an instate gas
pipeline contract carrier to the list of regulatory
chapters that were exempt from the RCA's decision making
procedures and provided that the RCA chair may appoint a
panel for hearings. The language was needed for the RCA to
work into AS 42.08 and to run its daily business. Section
26 added a new section to include the Alaska Public
Utilities Regulatory Act to AS 42.05 for review of certain
contracts by the commission; the section established a link
between the existing public utility regulation and the new
regulation for the instate gasline (AS 42.08). She
explained that while an AGDC line would be regulated under
42.08 and exempt from public utility regulation, public
utilities may have associated contracts for something other
than transportation capacity that the RCA would regulate
under AS 42.05. The RCA would include a covenant in
contracts between a utility and AGDC that would enable the
utility to pass on its costs in rates charged to consumers;
the RCA approval of the contract with AGDC and the public
utility would make the covenant enforceable. The amendment
worked to accommodate utilities that were not shippers that
decided to buy gas shipped by another entity or to store
gas it bought off of a line in order to keep any RCA
pipeline filings moving in a timely fashion. She furthered
that the RCA would be required to review the utility
contracts to determine whether they were "just and
reasonable" in a 180-day time period.
Representative Doogan queried whether the contract would be
approved automatically if the 180-day limit was not met.
Ms. Delbridge replied that the 180-day period was the
maximum time allowed for the RCA to make a decision. The
amendment also asked the RCA to expeditiously consider
contracts in order for the process to move at a reasonable
pace. She confirmed that the commission's failure to
approve or disapprove the contract within the given time
period would be de facto approval.
Representative Doogan asked what would happen if the
decision took longer than 180 days. Ms. Delbridge deferred
the question to Stuart Goering with the Department of Law
(DOL). She believed that the RCA found 180 days to
generally be a reasonable processing timeframe when
directed by the legislature.
Representative Doogan understood, but the issue was
important and the deadline put a limit on the commission's
decision making time. He wanted to fully understand the
reason for including the provision in the legislation. Ms.
Delbridge deferred the question to Mr. Goering if more
information was needed on the sponsors' decision to
restrain the timeline to prevent it from interfering with
AGDC's ability to turn precedent agreements into firm
transportation contracts and progress a pipeline.
4:04:18 PM
Representative Hawker firmly believed the 180-day
requirement was necessary and appropriate. He explained
that the legislature had looked at the time limit during
the prior session when it reauthorized the RCA. A great
deal of concern had been expressed that the RCA was taking
too long to process requests and impeding the process as a
result. The reauthorization had stipulated that the RCA
submit a report evaluating the concerns to the current
legislature. He recalled that the commission had concluded
that it could make the improvements without constraining
its resources. The goal of the 180-day deadline was to
emphasize the importance of processing the requests on a
timely basis. He agreed that Mr. Goering would be the
appropriate person to provide a more detailed description
of the RCA's processes.
Representative Gara communicated that sometimes the RCA
could not make timely a decision because the appropriate
parties were not providing information. He surmised that
the amendment would allow parties to gain automatic
approval of proposals if they withheld information until
the 180-day deadline. He requested to hear from the RCA
regarding the limit.
Representative Guttenberg requested that at some point the
sponsors discuss the location in the Amendment that
provided a definition of the project that would be
regulated. He was interested to know where the regulatory
process began. Ms. Delbridge replied in the affirmative.
STUART GOERING, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW (via teleconference), clarified that he was not able to
speak on behalf of the RCA. He explained that the
commission operated under a number of existing timelines,
primarily under AS 42.05.175. The timelines had similar
limitations that would give the applicant or utility
applying for a tariff the approval it sought if the
commission did not act within the specified time. The only
variation between the provision up for consideration and
the existing law was that under the latter the RCA had the
ability to extend the timeline one time with good cause.
The parties also had the option to consent to extending the
timeline beyond the time listed in statute. He believed
that whether 180 days was a sufficient period of time was a
policy question for the commission. The RCA would have to
provide its opinion during the open meeting setting; there
was a public meeting scheduled the following week where the
issue could be addressed if the House Finance Committee
wished.
4:10:00 PM
Representative Doogan communicated that he would
potentially take the matter up again in the future.
Representative Hawker appreciated his decision. He had been
consistently reminded in conversations with the RCA and DOL
that the legislature's job was to set policy and that the
agencies' responsibility was to implement the policies. He
worked to be respectful of the RCA without abandoning the
legislature's responsibility to an agency.
Ms. Delbridge continued to explain changes included in
Amendment 3. Section 27 added a new subsection to the
Alaska Public Utilities Regulatory Act exempting an instate
gasline subject to AS 42.08 from regulation under the
Public Utilities Act; Section 28 exempted the pipeline from
the Pipeline Act. She expounded that the pipeline needed to
be exempt from regulation under the other avenues, given
that AS 42.08 had been created to regulate it. Section 29
added a new chapter to AS 42 (Public Utilities and Carriers
and Energy Programs) titled In-state Pipeline Contract
Carrier. She read from a handout prepared by her office
(copy on file):
Section 42.08.010 Application of chapter; exemption.
States that this chapter applies to an instate natural
gas pipeline authorized by law to operate as a
contract carrier. Exempts an instate natural gas
pipeline subject exclusively to federal jurisdiction.
Section 42.08.020 Qualification of the Alaska Gasline
Development Corporation; findings. Determines that
AGDC is financially and managerially fit, willing and
able to provide service under 42.08. States that an
instate natural gas pipeline is required by public
convenience and necessity. Directs the RCA to
determine whether an entity applying under 42.08 is
technically fit, willing and able.
Section 42.08.220 General powers and duties. Provides
enabling direction for the RCA under 42.08. Requires
permits for construction, interconnections, expansions
and abandonment. Enables the RCA to intervene in
disputes that are between the carrier and a public
utility, and that are unable to be resolved by
contractual dispute resolution methods, and that
threaten the public safety and welfare. Directs the
RCA to not require rates or tariff regulations, and
not to conduct further review of contracts approved
under 42.08.
Ms. Delbridge elaborated that the addition of Section
42.08.220 was a sponsor position that encouraged an initial
limited front-end look and trusted that the contracts would
go forward (absent complaint) without an intermediary
ruling by a regulatory body. She continued to read from the
handout:
Section 42.08.230 Commission decision-making
procedures. Directs the RCA to follow its standard
decision-making procedures, and to expeditiously
adjudicate matters.
Section 42.08.240 Publication of reports, orders,
decisions and regulations. Standard RCA direction for
publishing reports, orders, decisions and regulations.
Section 42.08.250 Application of Administrative
Procedure Act. Standard RCA exemption from
Administrative Procedure Act adjudication procedures;
the RCA's adjudication procedures would apply.
Section 42.08.260 Annual report. Requires the RCA to
include in its annual report activities related to
42.08.
Section 42.08.300 Review of certain contracts by the
commission. AGDC or its successors will submit all
precedent agreements to the RCA; precedent agreements
with other than a public utility may be kept under
seal. The RCA will have 180 days to approve or
disprove precedent agreements as just and reasonable,
based on whether contracts were negotiated at arm's
length and whether there was unlawful activity or
unfair dealing. Approved contracts are not subject to
further review. A contract is arm's length if it is
made between two unaffiliated parties; or, if parties
are affiliated, they have followed the standards of
conduct for transmission providers adopted by the
Federal Energy Regulatory Commission.
Ms. Delbridge expounded that precedent agreements may be
kept under seal because the agreement was expected to take
several months to a couple of years to negotiate. She
pointed to Section 42.08.310:
Section 42.08.310 Contract carriage certificate. The
owner of an instate natural gas pipeline must have a
certificate of public convenience and necessity (CPCN)
to construct a pipeline and to transport gas. The RCA
has 180 days to issue a CPCN once application is made,
providing that the applicant is found fit, willing and
able to perform the services proposed. The RCA may
attach conditions to and amend, suspend or revoke a
CPCN. Operating authority may not be transferred
without RCA approval.
Ms. Delbridge noted that the section marked the shift from
regulation of contracts to regulating the gasline and the
service provided. She moved on to Section 42.08.320:
Section 42.08.320 Tariffs, contracts, filing, and
public inspection. Requires an instate natural gas
pipeline carrier to file all rules, regulations, terms
and conditions pertaining to service, and all
contracts with shippers. Requires changes in tariff
rates/rules and service conditions to be filed with
the RCA.
Ms. Delbridge furthered that the filings were intended to
be informational; the information on file with the RCA was
the official record. She pointed to Sections 42.08.330
through 42.08.350:
Section 42.08.330 Expansion, dispute resolution.
Contracts may provide for expansion, unless an
expansion would violate the terms of the Alaska
Gasline Inducement Act. Requires contracts to include
procedures for resolving disputes.
Section 42.08.340 Regulatory cost charge. Implements
standard RCA assessment of a user fee on regulated
entities; includes a cap and directs administration of
the user fee.
Section 42.08.350: Nothing to alter the calculation of
taxes and royalty. Nothing in 42.08 will change the
calculation of production taxes or of royalties due
the state.
4:18:03 PM
Ms. Delbridge directed attention to Sections 42.08.400
through 42.08.900:
Section 42.08.400 Public records. RCA records are
available to the public, except when classified by the
RCA as privileged; precedent agreements will be kept
confidential.
Section 42.08.410 Investigations. Allows the RCA to
investigate matters in 42.08.
Section 42.08.510 Designation of service agents.
Requires an instate natural gas pipeline carrier to
file a named, permanent resident as its agent
(standard RCA provision).
Section 42.08.520 Effect of regulations. Regulations
adopted by the RCA under 42.08 have the effect of law
(standard RCA provision).
Section 42.08.530 Judicial review and enforcement. RCA
final orders are subject to the judicial review
provisions in Section 13, HB 9.
Section 42.08.540 Joinder of actions. Appeals may be
joined under applicable court rules (standard RCA
provision).
Section 42.08.900 Definitions. Defines terms standard
to the RCA (commission, commissioner, record) and
includes terms within HB 9 (instate natural gas
pipeline, instate natural gas pipeline carrier).
Representative Costello referred to Ms. Delbridge's
testimony that the passage of the bill would be the
acknowledgement that there was a public convenience and
necessity for the project; however, she believed the
responsibility was given to AGDC on page 3 of the
amendment.
Ms. Delbridge explained that the amendment required a
carrier to have a certificate to operate the pipeline. The
amendment assumed that if the legislature passed HB 9 it
would give AGDC the mission to build the pipeline and was
by de facto in the public convenience and necessity. She
expounded that a company would have to meet the standard if
the project transitioned to an entity other than AGDC at
the point of certification.
Representative Costello referred to a provision in the
amendment requiring that AGIA could not be violated. She
wondered whether the state would be held to the terms if
AGIA went away in the future.
Ms. Delbridge responded in the negative. She detailed that
the requirement was related to whether or not contracts for
shipment on the line could provide for terms of expansion
in the future. Section 42.08.330 allowed contracts to
provide for expansion if they did not violate the terms of
AGIA. Contracts made in the near future could have a
contingency plan in the event that AGIA and its capacity
limits were no longer a factor in the future.
Representative Gara communicated that he would like to make
an amendment to the amendment at the appropriate time.
Representative Guttenberg wondered whether there was a way
to contest a contract if necessary once it had been
approved and deemed just and reasonable. Ms. Delbridge
replied that the contract arrangement would be governed by
contract law. She explained that a company could choose to
include language that would allow for a contingency if
there was a change in future circumstances.
Representative Hawker added that the section applied to the
submittal of precedent agreements for firm transportation
commitments to the RCA for review. The arrangements were
contractual and would be used to obtain necessary financing
to construct a pipeline. Once the contracts had been
reviewed and approved by the RCA it was necessary for
potential financers to know that the contracts were firm
and would not be second guessed after capital commitments
were made.
4:24:55 PM
Representative Gara looked at page 2, line 22 of Amendment
3. He asked what would happen if parties did not give the
RCA the information it needed to make a ruling on whether a
contract was just and reasonable. He wondered whether the
contract would automatically be approved if the decision
was not made within 180 days. Ms. Delbridge did not believe
it was the intent of the amendment to allow de facto
approval if information was not provided within the time
limit. She deferred the question to Mr. Goering for more
detail.
Mr. Goering elaborated that a company would need to produce
sufficient evidence to prove to the RCA that approval was
warranted and that the contract was just and reasonable. He
opined that currently the burden of proof requirement would
allow the commission to disapprove the contract if
sufficient information had not been provided by the
company. He believed it would be better to provide for
other ways out of the situation such as allowing the
commission to find good cause to extend the time limit or
to clarify that the commission could disapprove a contract
if it had not been properly supported.
Representative Gara stressed that the amendment would allow
for a contract to be automatically approved unless the
commission could prove that a contract was unjust or
unreasonable; the commission would not be able to prove
that a contract was unjust or unreasonable if it did not
have the information.
4:29:19 PM
Representative Hawker replied that the scenario described
by Representative Gara was not the legislative intent of
Amendment 3.
Ms. Delbridge clarified that the amendment assumed that a
contract was just and reasonable if two parties were
willing to sign it.
Mr. Goering responded that the language related to what the
commission was required to find in order to rule that a
contract was unjust and unreasonable was found in AS 42.05
and AS 42.06. He explained that there was a fairly
significant body of precedent regarding a party's burden of
proof. He expounded that it would be helpful if the
legislation specified how to handle the situation should it
arise. He noted that it would not be an unusual situation
for the commission to find itself in if the language in the
amendment did not change. Due to the timelines in AS
42.05.175 there would be the same potential problem in the
public utility realm as well. He noted that there had not
been much of a problem in the past and the commission did
have ways of dealing with the issues.
Representative Gara was happy to work with the sponsors' on
the issue before the bill moved to the House floor.
Representative Hawker believed that clarity was always
beneficial and that the RCA operated best when given clear
direction. He would be happy to work with Representative
Gara on adding clarity to the section that would not alter
its intent.
4:32:32 PM
Representative Gara MOVED to AMEND Amendment 3 (Amendment
10 27-LS0075\K.17 Bullock 3/20/12 became Amendment 1 to
Amendment 3).
Co-Chair Stoltze OBJECTED.
Representative Gara explained that Amendment 1 to Amendment
3 related to the tariff the RCA would allow companies to
charge, which would then be passed off to consumers; the
higher the tariff the higher consumer prices would be.
Under the current amendment the state would approve a
contract if two parties (i.e. a private carrier and private
gas supplier) could reach an agreement as long as it was an
arms-length negotiation with no fraud. Amendment 1 to
Amendment 3 would require that the tariff price charged
should be just and reasonable as determined by the RCA. He
furthered that putting the decision in the hands of the
RCA, followed the commission's traditional role in the
regulation of consumer gas prices.
Representative Hawker did not support Amendment 1 to
Amendment 3. The sponsors believed the arms-length
requirement was appropriate. He did not believe that the
Amendment 1 was applicable and stated that it would require
a test established in AS 42.05.291(c), which was about
regulating public utilities and included language related
to standards of the measurement of the "quantity, quality,
pressure, initial voltage, and other conditions pertaining
to the supply of the service, the accuracy of meters and
appliances for measurement, and providing for the
examination and testing of appliances used for
measurement." He discussed that the issue was about
precedent agreements and a sponsor of a pipeline project
asking the commercial market whether there was commercial
transaction to be had. He stressed that AGDC had a
statutorial obligation to make gas available in Alaska at
the least possible cost. He stated that public utilities
had an interest in protecting their consumers. The
amendment attempted to respect the right of contract with
an adequate review and assurance that a project would move
forward with results in the best interest of the public.
4:39:23 PM
Representative Costello believed Amendment 1 to Amendment 3
was redundant given that there was a separate portion of
the legislation that required the RCA to review precedent
agreements. Ms. Delbridge answered in the affirmative. She
elaborated that precedents between AGDC and any shipper
(e.g. a public utility, private entity, or other) were
required to be reviewed by the RCA to ensure that the
contracts were entered into under fair and reasonable
circumstances.
Representative Gara responded that unless the amendment was
adopted, Amendment 3 exempted the specific portion of the
gasline from the RCA review. He pointed to line 23 of
Amendment 3, which designated that the commission had to
determine that the price was just and reasonable if it was
negotiated at arms-length. The commission did not get to
determine whether the price was fair. He provided a
hypothetical example of a negotiation between Enstar and a
gas supplier. He opined that the entities may have no
interest in protecting consumers, but the commission would
have to find that the price was just and reasonable.
Representative Gara furthered that the amendment would
enable the RCA to fulfill its traditional role of
determining whether the price was just and reasonable. He
furthered that the amendment would require the pricing to
be just and reasonable under the standards adopted by
commission under AS 42.05.291(c), which allowed the
commission to adopt regulations for the accommodation and
convenience of the public. He believed that the section was
broad enough to allow regulations to be made. He referred
to page 6, line 14 of Amendment 3, which specified that
AGDC had duties to the public, but it could transfer the
gasline to successors that had a duty to their shareholders
and not the public. He asked committee members to vote for
the amendment if they believed that Enstar and a gas
supplier did not have the public's interest at heart when
setting a price.
Ms. Delbridge relayed that it was important for Amendment 3
to apply to AGDC and its successors because of the
possibility that AGDC may partner with other entities to
form a new company that would become the carrier. The bill
required AGDC to pursue a project that brought gas to
Fairbanks, through the Railbelt, and in Southcentral at the
lowest possible cost. She opined that the sponsors may
disagree with the concept that a producer and a company
could enter into a contract without caring about the public
because AGDC had a statutory obligation to carry forward
with the public's interest.
A ROLL CALL was taken on Amendment 1 to Amendment 3.
IN FAVOR: Gara, Guttenberg
OPPOSED: Joule, Wilson, Costello, Doogan, Edgmon,
Fairclough, Stoltze
The MOTION FAILED (7-2).
Representative Gara WITHDREW his OBJECTION to Amendment 3.
There being NO further OBJECTION, Amendment 3 was ADOPTED.
Vice-chair Fairclough remarked that she did not want her
vote to be characterized by a statement made by another
member. She understood that the issue was important to
Alaskans and believed that the committee wanted to ensure a
transparent process and that the public was well served
with low cost energy.
4:46:30 PM
Co-Chair Stoltze held the remaining amendments until a
later time.