Legislature(2009 - 2010)BUTROVICH 205

03/26/2009 11:00 AM Senate ENERGY


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 150 EMERGING ENERGY TECHNOLOGY FUND TELECONFERENCED
Heard & Held
+= SB 135 ALASKA NATURAL GAS DEVELOPMENT AUTHORITY TELECONFERENCED
Scheduled But Not Heard
+= SB 136 IN-STATE PIPELINES: LEASES; CERTIFICATION TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        SB 136-IN-STATE PIPELINES: LEASES; CERTIFICATION                                                                    
                                                                                                                                
CHAIR MCGUIRE announced the consideration of SB 136.                                                                            
                                                                                                                                
12:13:05 PM                                                                                                                   
JOE  BALASH, Special  Assistant to  the Governor  for Energy  and                                                               
Natural Resource  Issues, said SB  136 is part of  the Governor's                                                               
three-part  plan  to initiate  an  instate  natural gas  pipeline                                                               
project.  The first  part is  to  secure funding  in the  current                                                               
legislative budget cycle to initiate  work to define the need for                                                               
and  timing of  a pipeline  to deliver  natural gas  to Alaskans,                                                               
particularly  in  areas where  it's  needed  most. That  includes                                                               
conducting an alternatives analysis,  selecting a route, applying                                                               
for  major  permits   including  rights-of-way,  identifying  the                                                               
source of gas  and customers, and bringing all  the technical and                                                               
commercial pieces  together to create an  opportunity to sanction                                                               
a  project as  early as  2011. The  Governor has  appointed Harry                                                               
Noah,  a former  DNR commissioner,  as project  manager for  this                                                               
first part.                                                                                                                     
                                                                                                                                
The second  part of the plan  is a separate piece  of legislation                                                               
to  change  the statutory  missions  of  the Alaska  Natural  Gas                                                               
Development Authority. The notion is to broaden the horizon.                                                                    
                                                                                                                                
The third  part, which is contained  in SB 136, makes  changes to                                                               
the  Right-of-Way  Leasing  Act  and the  Pipeline  Act  for  the                                                               
purpose of facilitating the  commercial and business arrangements                                                               
between shippers  of gas, a  pipeline project, and  the customers                                                               
that will be necessary for a commercial project to move forward.                                                                
                                                                                                                                
12:15:11 PM                                                                                                                   
MR.  BALASH  explained that  in  late  2008  and early  2009  the                                                               
administration  began  discussions  with the  parties  that  were                                                               
interested in  pursuing a  bullet pipeline  project, specifically                                                               
Enstar and  Anadarko, and  identified some  things that  could be                                                               
smoothed  out  to  make  the process  flow  easier.  The  biggest                                                               
potential roadblock  they identified  was that under  current law                                                               
state  right of  way leases  require that  a pipeline  and lessee                                                               
commit  to providing  common carrier  service  on that  pipeline.                                                               
Describing common carrier service as  the gold standard of access                                                               
for  shippers of  gas, he  explained that,  in general,  a common                                                               
carrier pipeline  has to  provide service to  any and  all comers                                                               
when  requested.  If shippers'  requests  for  service reach  the                                                               
maximum  capacity of  that pipeline,  the pipeline  must pro-rate                                                               
the existing shippers and make room for the new entrant.                                                                        
                                                                                                                                
MR. BALASH  pointed out that  a 24  inch pipeline from  the North                                                               
Slope  to Southcentral  is certainly  a world-class  project that                                                               
would require some significant financial  commitments on the part                                                               
of  the players  in order  to secure  the financing  necessary to                                                               
construct the project. The shipper,  in this case Anadarko, would                                                               
like contractual certainty  that they won't be  pro-rated if they                                                               
make the  financial commitments to  develop a gas field  and then                                                               
want to  get that gas  to market.  They want certainty  that they                                                               
won't lose any  of their capacity in the pipe  so that they'll be                                                               
able to  follow through on  contractual commitments  they've made                                                               
to customers in terms of delivery.                                                                                              
                                                                                                                                
12:17:31 PM                                                                                                                   
MR.  BALASH said  that  as the  administration  moved forward  to                                                               
introduce  the  bill  and was  taking  into  consideration  other                                                               
dynamics with regard to the role  and scope of ANGDA and the need                                                               
to get  gas to more  than just Southcentral Alaska,  the Governor                                                               
asked  why   the  kind  of   provisions  they  were   asking  the                                                               
Legislature to make for a bullet  line aren't good enough for any                                                               
other pipeline.  Thus SB 136  is drafted  in a manner  that would                                                               
apply to all instate pipelines.                                                                                                 
                                                                                                                                
MR.  BALASH said  he would  throw out  one caveat  before getting                                                               
into   the  sectional   analysis.  That   is  that   because  the                                                               
administration did  its homework  with parties interested  in the                                                               
bullet  line,  they   did  not  do  the   homework  necessary  to                                                               
understand  how  these changes  might  impact  the operations  of                                                               
existing pipelines in Cook Inlet  and in particular the potential                                                               
impact to future pipelines in Cook Inlet.                                                                                       
                                                                                                                                
CHAIR MCGUIRE said the bill is not retroactive in nature.                                                                       
                                                                                                                                
MR. BALASH said that's correct.                                                                                                 
                                                                                                                                
CHAIR MCGUIRE asked if there are  any pipelines that are in early                                                               
stages that this may impact.                                                                                                    
                                                                                                                                
MR.  BALASH replied  he isn't  aware  of any  but the  bill is  a                                                               
fairly  complicated body  of law,  particularly  in the  Pipeline                                                               
Act.  With the  Chair's  indulgence  he said  he  may defer  some                                                               
questions  to  the  attorneys who  are  online  representing  the                                                               
Department of Law and the Regulatory Commission of Alaska.                                                                      
                                                                                                                                
12:20:00 PM                                                                                                                   
CHAIR MCGUIRE noted  that page 10, line 11, says  that the Act is                                                               
effective immediately.  She asked  Mr. Ostrovsky and  Mr. Stoller                                                               
if  they see  any impact  to  existing pipelines  in Cook  Inlet.                                                               
Existing pipelines  would probably  argue that they  shouldn't be                                                               
forced  to  be  common  carriers  when,  looking  forward,  other                                                               
pipelines  have  the opportunity  to  be  contract carriers,  she                                                               
added.                                                                                                                          
                                                                                                                                
LARRY  OSTROVSKY,  Civil Division,  Oil,  Gas  & Mining  Section,                                                               
Department of  Law, Anchorage,  agreed with  Mr. Balash  that the                                                               
bill is written to be prospective.  It would apply to anybody who                                                               
is  going  to apply  for  a  pipeline  right-of-way lease  so  it                                                               
applies equally to every intrastate pipeline.                                                                                   
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if these  provisions would  apply if                                                               
the line were built intrastate from Prudhoe Bay to Valdez.                                                                      
                                                                                                                                
MR. OSTROVSKY replied they would apply.                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  asked if this  would apply to a  line built                                                               
under AGIA by TransCanada Alaska to Valdez.                                                                                     
                                                                                                                                
MR.  OSTROVSKY  said this  is  designed  for gas  pipelines  that                                                               
originate  and terminate  within Alaska.  He cited  Section 3  on                                                               
page 2, line 19.                                                                                                                
                                                                                                                                
ROBERT  STOLLER,  Assistant  District Attorney,  Civil  Division,                                                               
Commercial/Fair Business  Section, Department of  Law, Anchorage,                                                               
stated agreement with Mr. Ostrovsky.                                                                                            
                                                                                                                                
CHAIR MCGUIRE said at least  one proposal envisions supplying the                                                               
LNG plant  in Kenai  for export capacity.  Noting that  this goes                                                               
back to the  FERC decision on jurisdiction, she  asked what would                                                               
happen if  the line meets  the requirements under Section  3, but                                                               
it's envisioned, and it happens, that  export of LNG comes out of                                                               
that line.                                                                                                                      
                                                                                                                                
MR. BALASH said  the fundamental question will be  whether or not                                                               
FERC asserts jurisdiction,  because in the Pipeline  Act RCA more                                                               
or  less  concedes  federal  jurisdiction  in  cases  where  that                                                               
happens. When  federal law preempts  state regulation,  the state                                                               
does not  assert regulation over  the facilities or  pipelines or                                                               
assets. Fortunately  TransCanada's license terms require  them to                                                               
abide by many of the things that are asked in SB 136.                                                                           
                                                                                                                                
12:24:05 PM                                                                                                                   
SENATOR WIELECHOWSKI  asked if  this would apply  to a  spur line                                                               
off the main line as is being contemplated by ANGDA.                                                                            
                                                                                                                                
MR. BALASH  replied he believes  the answer  is yes, but  it will                                                               
depend on where federal jurisdiction begins and where it ends.                                                                  
                                                                                                                                
CHAIR MCGUIRE asked if the FERC mandates common carrier status.                                                                 
                                                                                                                                
MR.  BALASH  explained  that  under  the  Natural  Gas  Act  FERC                                                               
provides  for contract  service in  the regulation  of pipelines.                                                               
Firm  service  contracts  are  contemplated,  but  then  all  the                                                               
provisions  in  the  Natural  Gas Act  are  designed  to  prevent                                                               
discriminatory behavior by pipelines.                                                                                           
                                                                                                                                
CHAIR   MCGUIRE  observed   that   if   an  intrastate   pipeline                                                               
contemplated  export  it would  be  a  contract pipeline,  so  it                                                               
wouldn't matter if it was under federal or state regulation.                                                                    
                                                                                                                                
MR. BALASH replied  we would hope so but  if federal jurisdiction                                                               
is not asserted over the pipeline,  the state right of way leases                                                               
require  the lessee  to covenant  that they  will provide  common                                                               
carrier access.  The Pipeline Act allows  for firm transportation                                                               
service  to be  offered and  regulated by  the RCA,  but it's  an                                                               
incongruity  between   the  Right-of-Way  Leasing  Act   and  the                                                               
Pipeline Act.  It's a brain  teaser to try  to marry the  two and                                                               
make sure  that when  the state enters  into a  lease arrangement                                                               
with a pipeline  that it is getting the kind  of commitments from                                                               
the pipeline  that will protect  the public interest.  The Right-                                                               
of-Way Leasing Act in intended to do that.                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI asked the value  of the lease for state land                                                               
on TAPS.                                                                                                                        
                                                                                                                                
MR.  BALASH said  he doesn't  have that  information but  he'd be                                                               
happy to find out.                                                                                                              
                                                                                                                                
12:27:29 PM                                                                                                                   
SENATOR WIELECHOWSKI noted that he  had mentioned $1 million, and                                                               
asked if he  has a sense of  what the lease would  run from Gubik                                                               
to Southcentral.                                                                                                                
                                                                                                                                
MR.  BALASH said  the $1  million  threshold in  bill Section  3,                                                               
mimics  language  in  AS 38.35.120  regarding  covenants  that  a                                                               
lessee is required to make for  pipelines valued at $1 million or                                                               
more. He isn't  certain in what year the $1  million was put into                                                               
law, but  the decision was  to use  the amount that's  in statute                                                               
for purposes of consistency.                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI  said if  he  reads  this correctly  "these                                                               
covenants are triggered  when you have a  noncompetitive lease of                                                               
state land for  rights-of-way for natural gas  pipeline valued at                                                               
a million dollars or more."                                                                                                     
                                                                                                                                
MR. BALASH said it's for a  pipeline that is valued at $1 million                                                               
or more.                                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI  said he  isn't sure that  it says  that and                                                               
asked  if he's  saying that  the million  dollars applies  to the                                                               
value of  the natural gas  pipeline and not  to the value  of the                                                               
rights-of-way.                                                                                                                  
                                                                                                                                
MR. BALASH said that's his understanding.                                                                                       
                                                                                                                                
SENATOR  WIELECHOWSKI asked  for legal  clarification because  he                                                               
reads it differently.                                                                                                           
                                                                                                                                
MR. OSTROVSKY  said he reads  the statute  to mean a  natural gas                                                               
pipeline valued  at a million  dollars or more. He  conceded that                                                               
he can see  how it could be  read both ways and  he'll verify his                                                               
answer.                                                                                                                         
                                                                                                                                
12:29:27 PM                                                                                                                   
SENATOR WIELECHOWSKI said if there's  uncertainty he'd argue that                                                               
it should be clarified.                                                                                                         
                                                                                                                                
CHAIR MCGUIRE  suggested some modifying language.  She asked what                                                               
pipelines would  be valued at  less than  $1 million and  who the                                                               
state might want to keep out of this new statutory framework.                                                                   
                                                                                                                                
MR.  BALASH  said he  believes  the  provision  was put  into  AS                                                               
38.35.120 in  1972 or 1974, but  the question is at  what point a                                                               
pipeline becomes  big enough to  affect the public  interest such                                                               
that these kinds of protections and requirements should apply.                                                                  
                                                                                                                                
CHAIR MCGUIRE asked him to  clarify that before the next hearing.                                                               
She understands that this is  incorporates an existing statute to                                                               
marry philosophical concepts, but  it reflects a policy decision.                                                               
Either the  policy decision is  good today and the  dollar amount                                                               
needs to  coincide or the  policy decision is no  longer relevant                                                               
and all pipelines should be regulated under this structure.                                                                     
                                                                                                                                
12:31:20 PM                                                                                                                   
MR. BALASH continued  the bill overview and said  that sections 1                                                               
and 2  make corrective  references in  statute sections  of Title                                                               
38. Section  3 adds a  new section 38.35.121 to  the Right-of-Way                                                               
Leasing  Act.  Section 120  requires  a  lessee to  make  certain                                                               
covenants to  the state and section  121 would put into  place an                                                               
additional  set  of  covenants  that a  lessee  would  make  when                                                               
applying  for   a  state   right-of-way  lease.   The  additional                                                               
covenants are contained  on pages 2-6 and are built  on the must-                                                               
haves in the  Alaska Gasline Inducement Act. They  are the things                                                               
that were  requested of applicants  under AGIA that  are intended                                                               
to  ensure that  benefits of  a project  accrue to  the citizens,                                                               
businesses and  workers in Alaska.  In addition they  provide the                                                               
predictability  of access  to a  pipeline that  is important  for                                                               
additional exploration and development to occur.                                                                                
                                                                                                                                
The first  is the  commitment to solicit  demand every  two years                                                               
for additional  pipelines. Next  are the  terms under  which they                                                               
would solicit that  demand. Item three is the  commitment to seek                                                               
the  approvals to  make the  expansion happen.  Item four  is the                                                               
commitment to reasonable  engineering increments, and identifying                                                               
what those  increments might be based  on the design of  the pipe                                                               
when  it's first  constructed.  Item five  is  the commitment  to                                                               
expand on those increments on commercially reasonable terms.                                                                    
                                                                                                                                
Item six is  the commitment to treat the expansions  on a rolled-                                                               
in basis with a  cap up to 115 percent of  the day-one rate. Item                                                               
seven is  the commitment to  offer distance sensitive  rates. The                                                               
administration asked  for that  under AGIA for  the big  pipe and                                                               
believes it  is applicable  here as well.  Item eight  relates to                                                               
Alaska hire to  make sure that the citizens are  benefited in the                                                               
construction  of  a  project  such  as this.  Item  nine  is  the                                                               
commitment to  negotiate, prior to construction,  a project labor                                                               
agreement (PLA) that  the lessee will commit to. Item  ten is the                                                               
commitment  to be  regulation  by  the RCA  under  AS 42.06,  the                                                               
Pipeline Act.                                                                                                                   
                                                                                                                                
12:34:30 PM                                                                                                                   
Section 4  sets out the definitions  for "commercially reasonable                                                               
terms" and  "reasonable engineering increments" in  the Right-of-                                                               
Way Leasing Act  to make sure everyone is talking  about the same                                                               
thing in section 121.                                                                                                           
                                                                                                                                
Section  5  amends the  Pipeline  Act  and  spells out  that  the                                                               
covenants  in Title  38 under  the Right-of-Way  Leasing Act  are                                                               
applicable to  the lessee, and  that the RCA has  jurisdiction to                                                               
enforce  the covenants  as  a  matter of  its  regulation of  the                                                               
pipeline provider.                                                                                                              
                                                                                                                                
Section 6 allows an additional  certificate to be provided by the                                                               
RCA. Mr. Balash continued as follows:                                                                                           
                                                                                                                                
     This goes back  to the bigger picture in  terms of what                                                                    
     it is  we're hoping to  achieve in  the next two  and a                                                                    
     half  years  in  terms  of getting  all  of  the  major                                                                    
     permits  under way  and basically  accumulated and  put                                                                    
     together for  a project  to be  sanctioned as  early as                                                                    
     2011. What  this would allow the  RCA to do is  grant a                                                                    
     conditional  certificate  and identify  the  conditions                                                                    
     that  need  to be  met.  If  for  instance, we  had  an                                                                    
     application for  a certificate on a  particular project                                                                    
     that  didn't necessarily  have a  gas supply  committed                                                                    
     yet. We  want them to be  able to go through  the steps                                                                    
     at the RCA  to be able to get their  certificate - much                                                                    
     like we  do for  conditional rights-of-way at  DNR. You                                                                    
     can get a conditional  right-of-way granted that spells                                                                    
     out the conditions that must  be satisfied to make that                                                                    
     right-of-way  firm.  So  this   would  take  that  same                                                                    
     concept and  apply it to a  certificate that's required                                                                    
     by the  Regulatory Commission of Alaska  and allow that                                                                    
     same kind of head start,  as it were, on the regulatory                                                                    
     process to take place.                                                                                                     
                                                                                                                                
Section 7 sets out the enforcement authority of the RCA.                                                                        
                                                                                                                                
Section 8  changes the definition of  firm transportation service                                                               
in the  Pipeline Act  to make  it clear  that firm  service means                                                               
that a shipper on a pipeline can not be prorated.                                                                               
                                                                                                                                
Section 9  adds the definition  for "common carrier"  that allows                                                               
somebody  who has  an existing  right-of-way lease  - where  they                                                               
made the  commitment to common  carrier service  - to be  able to                                                               
then   offer  firm   transportation  service   and  interruptible                                                               
transportation service on that pipeline.                                                                                        
                                                                                                                                
12:37:48 PM                                                                                                                   
SENATOR  WIELECHOWSKI asked  the status  of ANGDA's  work on  the                                                               
spur line.                                                                                                                      
                                                                                                                                
MR. BALASH replied his understanding  is that ANGDA very recently                                                               
entered into a reimbursable arrangement  and paid funds to BLM to                                                               
continue with  the EIS  for the Richardson  Highway route  on the                                                               
spur line work.                                                                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI   asked  if  the   administration  supports                                                               
ANGDA's efforts to build the spur line.                                                                                         
                                                                                                                                
MR. BALASH replied:                                                                                                             
                                                                                                                                
     We  have been  supporting ANGDA  since day  one of  the                                                                    
     Palin    administration.   And    the   question    is,                                                                    
     fundamentally, how  to evaluate what  opportunities and                                                                    
     needs  there  are for  pipeline  service  in Alaska  in                                                                    
     terms  of the  spur line  project that  has been  under                                                                    
     pursuit here  for the  last 15 to  16 months  by ANGDA.                                                                    
     Certainly  it  is  complementary to  a  large  diameter                                                                    
     project  that  would be  going  across  the border  and                                                                    
     similar to that pursued  by TransCanada and Denali. And                                                                    
     in that regard is very  helpful to the overall delivery                                                                    
     of gas to Alaskans.                                                                                                        
                                                                                                                                
     But,  whether  or not  that's  going  to be  the  right                                                                    
     vehicle - whether  or not we need to see  a bullet line                                                                    
     constructed sooner  than a large diameter  pipeline may                                                                    
     come into service - is  something that we're attempting                                                                    
     to spell out,  flesh out and understand  more fully. It                                                                    
     may be  that Cook Inlet  gas supplies reach  a critical                                                                    
     point here, whether it be  due to deliverability or any                                                                    
     number  of other  reasons, and  because  a bullet  line                                                                    
     requires such a  long lead time to  plan and construct,                                                                    
     we  want to  get started  now. And  so that's  been the                                                                    
     focus here lately from the Governor.                                                                                       
                                                                                                                                
12:41:00 PM                                                                                                                   
SENATOR WIELECHOWSKI asked if the  administration has to sign off                                                               
on ANGDA expenditures.                                                                                                          
                                                                                                                                
MR. BALASH said he'd be happy to find out.                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI  asked if the administration  has refused to                                                               
sign off on expenditures that ANGDA has requested.                                                                              
                                                                                                                                
MR.  BALASH  said  his  understanding is  that  the  most  recent                                                               
request for  the work with BLM  was delayed somewhat, but  it did                                                               
go through. They  have been scrutinizing whether  or not requests                                                               
by  ANGDA for  contracting and  expenditures are  consistent with                                                               
the  statutory mission  of the  authority and  the appropriations                                                               
made by the Legislature.                                                                                                        
                                                                                                                                
SENATOR  WIELECHOWSKI  asked if  he  knows  if any  requests  for                                                               
expenditures by ANGDA have been denied.                                                                                         
                                                                                                                                
MR. BALASH  replied he isn't  aware of any outright  denials, but                                                               
he isn't sure about the latest status.                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI said  he'd appreciate an update  on that and                                                               
asked  if  the  administration   has  requested  any  changes  in                                                               
leadership at ANGDA.                                                                                                            
                                                                                                                                
MR.   BALASH   said  he   understands   that   there  have   been                                                               
conversations  about   various  approaches  related   to  overall                                                               
direction  and willingness  to  consider additional  information,                                                               
but he hasn't participated in those deliberative conversations.                                                                 
                                                                                                                                
12:43:20 PM                                                                                                                   
SENATOR WIELECHOWSKI restated the question.                                                                                     
                                                                                                                                
MR. BALASH replied he doesn't have an answer.                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI asked him to look  into that and get back to                                                               
him.                                                                                                                            
                                                                                                                                
MR. BALASH said he'd be happy to.                                                                                               
                                                                                                                                
CHAIR MCGUIRE  asked Mr. Balash  find out how companies  that are                                                               
considering a bullet  line are reacting to  the implementation of                                                               
the covenants.  She noted that sometimes  attempts to incentivize                                                               
make  for less  incentive to  the  private sector.  A company  is                                                               
considering  building  a  bullet   line  and  Alaska  needs  that                                                               
project. She appreciates  many of the covenants  and she wouldn't                                                               
want  the committee  to pass  a piece  of legislation  that might                                                               
interfere  with  current  business  plans  and  the  free  market                                                               
opportunity for a bullet line.                                                                                                  
                                                                                                                                
MR.  BALASH  agreed  and  added  that  the  parties  they've  had                                                               
discussions  with were  aware of  the  administration's view  and                                                               
position on  the need for the  must-haves. But, he said  he can't                                                               
speak for them here.                                                                                                            
                                                                                                                                
CHAIR MCGUIRE announced she would hold SB 136 in committee.                                                                     

Document Name Date/Time Subjects
Bill Packet for SB 150.pdf SENE 3/26/2009 11:00:00 AM
SENE 3/27/2009 11:00:00 AM
SB 150
Bill Packet for SB 136.pdf SENE 3/26/2009 11:00:00 AM
SB 136