Legislature(1999 - 2000)
03/01/2000 02:10 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 290 - STRANDED GAS PIPELINE CARRIERS CO-CHAIR MASEK announced that the first order of business would be HOUSE BILL NO. 290, "An Act relating to stranded gas pipeline carriers and to the intrastate regulation by the Regulatory Commission of Alaska of pipelines and pipeline facilities of stranded gas pipeline carriers." [The bill had been heard on February 21, 2000, after which it was assigned to a subcommittee chaired by Representative Barnes. Before the committee was CSHB 290(O&G). However, a proposed committee substitute (CS), version 1-LS1269\I, Chenoweth, 2/25/00, had been drafted.] Number 0447 REPRESENTATIVE BARNES pointed out that the [subcommittee] working group had consisting of herself, Representative Hudson and Representative Joule. They had agreed upon four amendments that are incorporated in the proposed CS. She read into the record the "issue, resolution and effect of amendment" for each of the four amendments: [Amendment 1]: In drafting the House Special Committee on Oil and Gas committee substitute, changes were made to the proposed amendment language, dropping the phrase, "that individually consume" and replacing it with "in which the consumption by customers is." Additionally, the phrase "and each request for service by a public utility" was also dropped. The resolution ... : Restoring the dropped phrases was agreed to by all working group members. These changes restore the language in the bill to conform with the original amendment language. Amendment 2: The Chairman of the House Special Committee on Oil and Gas introduced this section as an amendment, with the stated intention of providing explicit direction to the commissioner of the Department of Natural Resources to consider whether royalty oil or gas to be taken in kind may be necessary to meet present or projected intrastate domestic or industrial demand, and to require legislative approval, by law, before the commissioner takes any action toward the taking or disposal of royalty oil or gas. The resolution ...: The working group participants concur that CSHB 290(O&G), Section 1, language related to policy direction for the commissioner is duplicative of existing statutory requirements in AS 38.05.182 and AS 38.05.183(d). The working group participants also agreed that the language in part (b) has unintended consequences which could prohibit the DNR commissioner from performing any act related to the taking and disposition of royalties, including accepting state royalty checks from producers without an explicit act of law. This was agreed to be untenable, and the working group participants agreed to recommend that Section 1 of the CS [CSHB 290(O&G)] be deleted from the bill. Effect of the amendment: the amended language removes Section 1 from the current CS. Amendment 3: The administration believed the bill's original language modifying AS 38.35.120, the Right of Way Leasing Act, introduced unnecessary ambiguity regarding the state pipeline coordinator's office's oversight of the LNG plant and marine terminal. Additional concerns had been raised by the Yukon Pacific Corporation that the bill's original language in this same section would, in some way, prejudice their existing right-of-way lease for the Anderson Bay site. The sponsor group concern: The sponsor group's intent in the bill's original language was to exclude the LNG plant and marine terminal only from the common-carriage covenant requirement under the Right of Way Leasing Act, and not to modify any current existing regulatory oversight or to affect any existing right-of-way lease. Resolution: The Department of Law has drafted language which resolves the concern to the satisfaction of all parties - the Administration (SPCO), the sponsor group and the Yukon Pacific Corporation. The amended language removes the requirement for the LNG plant and marine terminal to be in common carriage under the Right of Way Leasing Act, without affecting the SPCO's delegated authority under the Act, thus Amendment 3. Amendment 4: The Section 8 language. The issue is the Regulatory Commission of Alaska (RCA) believes that intrastate tariffs for the gas pipeline should be calculated utilizing the tariff methodology from the Pacific Utilities Act (42.05), which is a different methodology than that provided for by the Pipeline Act (AS 42.06). According to the RCA, a utility rate- making methodology will result in more affordable tariffs for the intrastate transportation of gas than will the Pipeline Act rate-making methodology. The sponsor group concern: The sponsor group believes that this requirement creates a regulatory hybrid which reduces the clarity and certainty intended in this legislation. The underlying statutory requirements for tariffs under both the Public Utilities Act and the Pipeline Act are the same. AS 42.05.381(a) under the Public Utilities Act and AS 42.06.370(a) under the Pipeline Act both impose the identical requirement that tariff rates be "just and reasonable." The sponsor group believes the appropriate time for the detailed determination of what should or should not be allowed in an intrastate tariff will be when filed tariffs are before the RCA for its consideration as to whether they are just and reasonable. This section of the bill needlessly creates uncertainty about the intended regulatory regime. ... [Resolution]: The working group could not reach a consensus on this particular amendment; ... therefore, it has been removed from the bill. And I believe that the whole question of any detailed tariff methodology in this piece of proposed legislation is premature at this time. REPRESENTATIVE BARNES said the focus of this legislation is and should continue to be the removal of commercial regulatory impediments to the successful marketing of LNG for export to the Asian market and in-state use. The original legislation was purposefully kept simple and targeted to those things that needed to be changed for the project to be taken seriously in the marketplace. She concluded: We did not try to address all the various issues which will ultimately come up if we have a project, nor could we, at this point; it's simply too early. Thus, those are the reasons for the four specific amendments, which are contained in the proposed CS before you. Number 1035 CO-CHAIR HUDSON made a motion to adopt the proposed CS for HB 290, version 1-LS1269\I, Chenoweth, 2/25/00, as a work draft. There being no objection, it was so ordered. CO-CHAIR MASEK thanked the working group. CO-CHAIR HUDSON commended Representative Barnes for bringing the appropriate parties to the table. He said that he thinks they have met their charge. REPRESENTATIVE COWDERY wondered if the use of gas in the pipeline would be limited to anyone along the line. REPRESENTATIVE BARNES replied no, nor does it limit the size of the pipeline being built. REPRESENTATIVE COWDERY wondered how much money will be spent to build an LNG facility that will accommodate the pipeline. REPRESENTATIVE BARNES explained that before beginning debate on the original enabling legislation, HB 393, the Department of Natural Resources (DNR) and the Department of Revenue (DOR), who had hired a consultant, had come before the legislature and provide the facts on the costs of the pipeline. She indicated that Commissioner John Shively of the DNR was present and could comment on that. Number 1336 JOHN SHIVELY, Commissioner, Department of Natural Resources, stated that the estimates have varied quite a bit. He explained that when they started the project the estimates varied between $11 and $15 billion for the whole project. He pointed out that one of the major efforts of the sponsor group is to bring the cost down, because they recognize that the economics on the upper end of those figures is not realistic in terms of being able to sell LNG. REPRESENTATIVE COWDERY wondered where the primary field would be initially with the gas, and if there is a sequence of how that might be utilized. MR. SHIVELY explained that the gas primarily is at Prudhoe Bay. He also pointed out that Point Thompson has significant reserves that could be tied in, and there are other gas-prone areas on the North Slope that have not been explored yet. Number 1444 REPRESENTATIVE WHITAKER indicated that his original concern was that it be established that there be no higher priority for in- kind royalty gas than in-state usage for both the near term and the long term. He explained that it is not possible for him to ascertain whether or not the proposed CS accomplishes that goal at this point. He mentioned that the other top priority at the time the bill was initially discussed was future access rules, and that those future access rules be fair and equitable. He stressed that without having more time to review the proposed CS, he cannot determine that the proposed CS provides for that. However, understanding that time was of the essence, he indicated he had no objection to the proposed CS moving from the committee. REPRESENTATIVE BARNES said she does not believe that the subcommittee did anything to the bill that would preclude in- state use, nor did they do anything that denied access to the pipeline. She believes they came out of subcommittee with a fair bill, and it was her understanding that the bill was to be a simple regulatory bill to allow the projects to move forward with some certainty in contracts, without it being too cumbersome. She believes the bill does that, she concluded. REPRESENTATIVE WHITAKER clarified that there was no inference to the proposed CS having a negative effect, but simply that he has not had time to understand the ramifications of the inherent changes. He reiterated that he has no objection to its moving. Number 1650 REPRESENTATIVE JOULE commented that there has been a lot of press over the past year about the Alaska Gasline Port Authority and what they have tried to do, because it involves the boroughs along the route: Valdez, Fairbanks and the North Slope. He said he has looked over the letter from the Alaska Gasline Port Authority, and it is of some concern to him that the people who have a big impact on the project and are trying to get something going are not onboard. REPRESENTATIVE BARNES indicated she has also received the letter from the Alaska Gasline Port Authority regarding HB 290. She reiterated that she does not believe that anything in the bill limits the size of the pipeline or the amount of gas that can be used in-state. Nor does she believe that the Alaska State Legislature, at any time, has taken a position of supporting any plan set forth by the Alaska Gasline Port Authority, the sponsor group, Yukon Pacific Corporation or anyone else. The legislature has worked on enabling legislation that will ensure that the gas is in the marketplace in a timely manner, and that will give the commissioner the tools that are necessary if and when a project of any size or scope is able to go forward. Writing a piece of legislation that gives one an advantage over another is not in Alaska's best interest. She believes it is in Alaska's best interest for those groups that propose a project that is viable under any of the proposed pieces of legislation that they go forth to the commissioner with their facts and once they are able to persuade him then he can come before the legislature. CO-CHAIR MASEK referred to the letter from the Alaska Gasline Port Authority and stated: This concern has never been discussed in conversation with my office, or during any meeting of the working group. It was made clear at last Monday's [February 21] hearing that any concerned party was to meet with the working group to have concerns discussed and possible amendments drafted. During the working group meeting last Thursday in Commissioner Shively's office, the Port Authority said they no longer had concerns with HB 290 and that they neither support nor oppose the bill. Nothing in HB 290 limits or restricts the in-state use of natural gas. HB 290 is not designed to support any particular project. Before any North Slope natural gas pipeline project can proceed, no matter the size of the pipe, certain changes to existing statutes are required. Number 1995 CO-CHAIR HUDSON said he would like to reiterate what Representative Barnes stated. There was no intent in the legislation to show any preference or to create anything that provided a preferential opportunity for any contractor or operator to build the pipeline. He said there was also full support for in-state use to be a high priority, if not the highest priority. He asked that the people who wrote the letter give the committee something specific to look at, which they can probably take a look at in the next committee of referral or on the House floor. He clarified that the size was not intended to be confining, but rather it was intended to express a fair and equitable process. He indicated that he does not know where the problem is coming from, but that it sounds as if "they" are saying that the Port Authority does not support HB 290 since the bill is designed to support a project size that could substantially limit or restrict the in-state use of natural gas. He wondered how that is possible since nothing has been received that would show how or where that would be the case. He stressed that the bill had not been altered appreciably. The intent of the working group and the subcommittee chair was to try to bring everyone to the table and come up with language that was as neutral and accommodating as possible, which believes they achieved. Number 2113 REPRESENTATIVE HARRIS asked whether Amendment 3 gives the Joint Pipeline Office the oversight for the terminal and pipeline. REPRESENTATIVE BARNES answered, "That is correct." REPRESENTATIVE WHITAKER indicated that he is also puzzled by the letter from the Alaska Gasline Port Authority, and is still looking for a reason why they object. He pointed out that the bill, as originally proposed, restricted possible access and usage of in-state gas, but that has been eliminated and maintained through the proposed CS. He noted that the stranded gas portion of the title was removed, so that a project that did not require falling under the auspices of HB 393 would not be required to participate under the rules of HB 393. He pointed out that it is possible that there may be projects, such as the Alaska Gasline Port Authority [proposes], that do not require the tax break associated with HB 393. He stated that HB 290 has been greatly improved, and he is in support of moving it from committee. Number 2268 REPRESENTATIVE COWDERY commented on the letter where it says that the Alaska Gasline Port Authority would have as much gas as possible used and consumed within the state, with the excess being available to Asia. He said it seems that the use of the gas in-state would be a very low percentage, to make the project go. He wondered how much of the 12 percent royalty would be necessary for in-state needs. In looking at Alaska's history, he noted, the in-state needs have been dealt with by the state with its share of the royalty. He indicated that he does not understand the letter, and suggested probably about 3 percent of the line's capacity would be used for in-state use. He pointed out that there always have been power cost problems for rural Alaska, and he believes it would be feasible to shift some of the LNG to rural Alaska. REPRESENTATIVE HUDSON made a motion to move CSHB 290 [version 1- LS1269\I, Chenoweth, 2/25/00] out of committee with individual recommendations and the attached fiscal notes; he asked for unanimous consent. There being no objection, CSHB 290(RES) was moved from the House Resources Standing Committee.
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