Legislature(2009 - 2010)BARNES 124
04/16/2009 07:30 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB164 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 164 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
April 16, 2009
7:34 a.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Nancy Dahlstrom
Representative Kyle Johansen
Representative Jay Ramras
Representative Pete Petersen
Representative Chris Tuck
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 164
"An Act relating to noncompetitive leases of state land and for
rights-of-way for oil or natural gas pipelines that originate
and terminate within the state and to the regulation and
certification of those pipelines; relating to conditional
certification for certain new natural gas pipelines; relating to
definitions of "common carrier" and "firm transportation
service" in the Pipeline Act."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 164
SHORT TITLE: IN-STATE PIPELINES: LEASES; CERTIFICATION
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/02/09 (H) READ THE FIRST TIME - REFERRALS
03/02/09 (H) ENE, RES, FIN
03/28/09 (H) ENE AT 10:00 AM BARNES 124
03/28/09 (H) Heard & Held
03/28/09 (H) MINUTE(ENE)
04/16/09 (H) ENE AT 7:30 AM BARNES 124
WITNESS REGISTER
JOE BALASH, Special Staff Assistant for Energy and Natural
Resource Issues
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 164.
DON BULLOCK, Attorney
Legislative Legal and Research Services
Legislative Affairs Agency (LLA)
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 164.
ACTION NARRATIVE
7:34:21 AM
CO-CHAIR BRYCE EDGMON called the House Special Committee on
Energy meeting to order at 7:34 a.m. Representatives Johansen,
Dahlstrom, Ramras, Millett, and Edgmon were present at the call
to order. Representatives Petersen and Tuck arrived as the
meeting was in progress.
HB 164-IN-STATE PIPELINES: LEASES; CERTIFICATION
CO-CHAIR EDGMON announced that the only order of business would
be HOUSE BILL NO. 164, "An Act relating to noncompetitive leases
of state land and for rights-of-way for oil or natural gas
pipelines that originate and terminate within the state and to
the regulation and certification of those pipelines; relating to
conditional certification for certain new natural gas pipelines;
relating to definitions of "common carrier" and "firm
transportation service" in the Pipeline Act."
7:35:15 AM
JOE BALASH, Special Staff Assistant for Energy and Natural
Resource Issues, Office of the Governor, reviewed the provisions
in HB 164.
7:36:21 AM
REPRESENTATIVE RAMRAS mentioned his past debt to Mr. Balash;
nevertheless, he stated his reservations about the bill. He
then asked whether those who did not vote for the Alaska Gasline
Inducement Act (AGIA) should support HB 164 when the bill has so
many provisions that are similar to those in AGIA.
7:38:01 AM
MR. BALASH pointed out that three members of the committee did
not vote on AGIA. Furthermore, the AGIA vote was on whether to
award the license, not to decide the underlying law.
7:39:02 AM
REPRESENTATIVE RAMRAS continued to explain that one of the
significant impediments to AGIA, in the opinion of those who
voted against it, is the roster of "must-haves". These must-
haves are now manifested in HB 164.
7:39:31 AM
MR. BALASH reminded the committee that members of the committee
th
who were members of the 25 legislature voted for the must-haves
that are part of the underlying law of AGIA.
7:39:58 AM
CO-CHAIR EDGMON requested a review of the bill.
REPRESENTATIVE RAMRAS further asked whether deletion of the
must-haves would weaken HB 164.
MR. BALASH said yes. He informed the committee that the
administration's concern regarding the change in "common carrier
privilege and access" is not an insignificant one, and must be
balanced against the way that contract carriage is implemented
and the opportunities for expansion. Common carrier service is
the gold standard of an open access pipeline; in fact, the
restriction of service and opportunities for expansion must be
balanced with regular solicitations, and the kinds of features
seen in the list of must-haves that are embedded in Title 38,
Sec. 3, of the bill.
REPRESENTATIVE RAMRAS asked which must-haves are essential to HB
164, and which are nonessential.
7:42:29 AM
MR. BALASH opined none are nonessential. He then noted that the
first two sections make additional references to other statutes
that reference Sec. 120 and Sec. 121; furthermore, Sec. 3
creates a new section in AS 38.35, the Right-of-Way Leasing Act.
The new section, Sec. 121, begins on begins on page 2, line 18,
and adds additional covenants that are required in leases for
natural gas pipelines that originate and terminate within the
state. He said, "... originating and terminating within the
state means we're talking about an inter-state pipeline, not a
intra-state pipeline, so we're not using the state right-of-way
leasing act to try and affect an inter-state pipeline that's
regulated by [the Federal Energy Regulatory Commission (FERC)].
This is a pipeline that would be regulated by the [Regulatory
Commission of Alaska (RCA)]." Mr. Balash continued to explain
that the first new covenant addresses the level of expansion
opportunity. In fact, every two years the pipeline will assess
the demand for additional capacity in the pipeline.
7:44:19 AM
REPRESENTATIVE RAMRAS listed the various sources of natural gas.
He asked whether it was legally possible to expand the pipeline
if the gas is coming from the North Slope at the rate of 500
million cubic feet per day (MCF/d).
MR. BALASH clarified that assuming Representative Ramras'
reference is to the project assurances clause in the AGIA
license, and that the project is funded by a grant of state
cash, or preferential tax or royalty treatment, the treble
damages clause is applicable; however, the Palin administration
is assuming the project is economic at the outset and will be
funded by the private sector. Then there is no concern about
exceeding the 500 MCF/d limit.
REPRESENTATIVE RAMRAS asked about the tax ramifications. For
example, HB 44 authorized $250 million that may be part of a
subsidy towards an in-state pipeline. Additionally, the
pipeline coordinator wants to use Alaska Natural Gas Development
Authority (ANGDA) to coordinate state permits. He surmised
there will be state involvement.
MR. BALASH expressed his understanding that soliciting the
market or assessing the capacity of the pipeline would not
result in a violation of the AGIA license. He related that the
work of firming up the major permits, and identifying customers
and the suppliers of gas, will be reimbursed to the state. Thus
there is no cash grant award involved; furthermore, $250 million
will not build a pipeline from the North Slope to Southcentral
Alaska.
REPRESENTATIVE RAMRAS will confirm if HB 164 needs a referral to
the House Judiciary Standing Committee (HJUD) for legal
consideration.
7:48:31 AM
REPRESENTATIVE JOHANSEN expressed his concern over whether this
pipeline will be FERC or RCA regulated.
REPRESENTATIVE RAMRAS said that he had talked with FERC and
suggested that the deletion of Sec. 3 would remove his concerns
about legality.
MR. BALASH called attention to page 3, line 30, regarding the
terms of service, and noted that [paragraph] (2) specifies that
the pipeline company would not require disparate treatment of a
perspective shipper, put a commercial burden on them, or
otherwise subvert the commitment made on open season and
expansion opportunities.
REPRESENTATIVE RAMRAS asked whether Mr. Balash skipped [sub
paragraphs] (C), (D), (E), & (F).
MR. BALASH said yes.
REPRESENTATIVE RAMRAS, in response to Co-Chair Edgmon, expressed
his decision to "root in" on this bill and its provisions.
CO-CHAIR EDGMON expressed his intent to have a full hearing and
then to take action on the bill.
CO-CHAIR MILLETT suggested a review of pages 3-7 to talk about
the importance of the must-haves.
7:52:29 AM
MR. BALASH, in response to Co-Chair Edgmon, said he would
summarize for clarification. On page 2, line 25, he read:
(1) ... commit that [after] the first binding open
season, the lessee will assess the market demand [for
additional pipeline capacity at least] every two years
through public nonbinding solicitations;
MR. BALASH stressed that a nonbinding assessment determines
whether an open season needs to take place. In order for
potential shippers to understand what the opportunity is, they
need to know the timing of the assessment, which is covered in
[sub paragraph] (A). Furthermore, [sub paragraph] (B) provides
that there will be at least 30 days' prior public notice for
each solicitation and [sub paragraph] (C) sets out the next
reasonable engineering increment of capacity such as compression
stations and looping.
REPRESENTATIVE RAMRAS presumed that the pipeline is not economic
if it is transporting less than 500 MCF/d. Therefore, he
questioned whether there was any language that speaks to the
following: the size of the pipe, whether ANGDA is used for
permitting, or the source of the supply of gas. He concluded
this language is illegal and covers situations for a pipeline
that is already out of compliance.
MR. BALASH opined the use of the word illegal is founded on a
false presumtion. Any concern with the threshold the 500 MCF/d
represents must be based on the presumption that the pipeline is
not economic and requires a subsidy by the state. However, if
the current estimates that the demand for gas will be 740 MCF/d,
there will be no need for state subsidies.
REPRESENTATIVE RAMRAS re-stated his point that the state is
presently giving $9.5 million to ANGDA for permitting. Illegal
is the appropriate word and there is a lack of language in HB
164 to frame this.
MR. BALASH turned to page 3, line 6, that requires a good faith
effort on the part of the lessee to estimate the cost of
regulated tariff rates. On page 3, lines 9-10 require a good
faith estimate of how long it will take to provide the service.
On page 3, lines 11-21, identify the kinds of requirements
expected of shippers. On page 3, lines 22-29, require a
commitment to promptly and diligently pursue a binding open
season for expansions and to respond to nonbinding
solicitations. [Paragraph] (2), beginning on page 3, line 30,
requires the open season to be nondiscriminatory and conducted
without additional requirements to prospective shippers. On
page 4, line 5, [paragraph] (3) requires that after open season,
the pipeline company promptly and diligently pursue regulatory
approvals, permits, and RCA orders in order to accomplish an
expansion. [Paragraph] (4), lines 17-21, require the pipeline
company to file as part of the overall tariff, the pipeline's
determination of the next reasonable engineering increment.
[Paragraph] (5), lines 22-24, require not only expansion of the
pipe, but that expansion is done in a manner that encourages
exploration and development in the state.
REPRESENTATIVE RAMRAS asked what "commercially reasonable terms
mean in the context of an in-state gas pipeline."
MR. BALASH stated that the definition is provided on page 6,
line 31. He answered:
Commercially reasonable terms mean that revenue from
the transportation contracts cover the cost of the
expansion, including increased fuel costs and a
reasonable return on capital.
REPRESENTATIVE RAMRAS clarified "in the context of" and "in-
state pipeline."
MR. BALASH, responding to Representative Ramras' request for
further clarification, stated that a commercially reasonable
term of service on the pipe is one that allows the pipeline to
earn a rate of return that satisfies the needs of the investor
without unduly burdening the shipper of the gas, or the customer
that buys the gas.
8:03:18 AM
REPRESENTATIVE RAMRAS re-stated his request for a real example
of an event in Alaska that would trigger an expansion.
MR. BALASH referred to page 2, line 25, that requires an
assessment of market demand. In further response, he offered
the examples of the depletion of the gas supply in Cook Inlet,
and the increased use of natural gas vehicles.
CO-CHAIR EDGMON mentioned the shortage of time for discussion.
REPRESENTATIVE RAMRAS pointed out that the language is premature
and superfluous to the present situation. There is nothing on
the "near-term horizon that requires us to have all of this
burdensome language ... that is going to do nothing but scare
off a private sector entity.... Arguably, HB 164 is not
material to what we are doing."
CO-CHAIR EDGMON encouraged Representative Ramras and other
members to produce amendments for the full airing of their
views.
REPRESENTATIVE RAMRAS expressed his support of some of the steps
taken by the administration, but not HB 164 or HB 163. In
response to Co-Chair Edgmon, he said at the appropriate time he
will move to strike Sec. 3.
CO-CHAIR MILLETT agreed with Representative Ramras and said that
Sec. 3 also gives her pause because putting "sideboards" on a
project is a detriment to the private sector.
CO-CHAIR EDGMON encouraged full committee discussion.
REPRESENTATIVE JOHANSEN observed he has time today for review of
the bill and encouraged the committee to take the time necessary
for further discussion. Additionally, he expressed his concern
about generating the market sufficient to fill the pipeline.
8:13:44 AM
MR. BALASH acknowledged that natural gas needed for cars might
be many years away; however, if a right-of-way for a natural gas
pipeline is arranged with the private sector it is a contract
that must be honored. For contracts to work for the life of the
pipeline, they must be broad and flexible.
REPRESENTATIVE RAMRAS encouraged the committee to review other
sections of the bill and return to Sec. 3 afterward.
8:15:33 AM
CO-CHAIR EDGMON stated his intention to extend the hearing in
order to review the bill "line by line".
MR. BALASH reminded members that the administration has had
discussions surrounding the "bullet line project" with private
sector entities who have not had the opportunity to testify on
the bill. He turned to page 4, line 25, [paragraph] (6), and
said that this paragraph requires that the lessee will propose
and support the recovery of capacity expansion costs by a
rolled-in basis. He explained that a pipeline can be expanded
through the addition of compression stations, or by the addition
of pipe segments, called looping. Adding compression stations
is usually cheaper until a certain threshold pressure is
reached. At that point, it must be determined who will pay the
incremental increased cost to operate the expanded pipeline.
The two choices are: incremental pricing that is paid by the
new shipper; or rolled-in pricing that is divided and paid for
by all of the pipeline customers evenly. In the example of an
800-mile pipeline with two or three compression stations, the
addition of more compression stations is most likely, thus the
cost of the additional compression stations is spread among all
of the units of gas. Assuming the amount of gas is increased
from 450 MCF/d to 650 MCF/d, the incremental cost of the
additional compression stations is spread out, the overall
tariff goes down, every shipper benefits, and nobody complains.
But if the cost increases the tariff, there are disputes.
Historically, pipeline companies in the U.S. inter-state gas
market preferred rolled-in pricing; however, after the 1980s,
the federal regulatory body moved toward incremental pricing as
a means of stimulating competition between companies.
Competition was desired because there was a glut of gas and
consequently, pipeline companies became regulated monopolies.
8:24:07 AM
MR. BALASH noted that Canada continues to remain largely
committed to rolled-in rates. As Alaska has not developed a
pipeline system to move gas, the administration believes the
rolled-in pricing system is the best way to achieve a network of
pipelines.
CO-CHAIR MILLETT asked for an example of a combination of
rolled-in and incremental rates.
MR. BALASH responded that the use of rolled-in rates is
necessary for the development of pipeline networks and natural
gas transportation systems in Alaska. On the other hand, the
potential risk to an initial shipper is that rolled-in rates
will increased until the cost exceeds the rates the shipper
agreed to originally. Therefore, there should be a "cap" on the
exposure risk to the shipper. On page 4, line 26, [sub
paragraph] (A) states that the pipeline will offer expansion
capacity on a rolled-in basis; however, for the initial shippers
there will be a cap of 115 percent of "day-one rates". For
example, if the day-one rate is $2, the rate to the shipper will
not exceed $2.30. Mr. Balash further explained that if the
overall cost of the pipeline cannot be recovered at the $2.30
rate, then the newest expansion shippers will pay the
incremental cost above $2.30. Thus the pipeline is offering
both rolled-in rates and incremental rates.
CO-CHAIR MILLETT asked whether distance-sensitive rates are a
third possibility when a shipper only needs expansion for a
short distance.
MR. BALASH said, "The vagaries of rate-making are
extraordinarily dry." He gave the example of an original
pipeline with Anadarko Petroleum Corporation (Anadarko) shipping
gas from the Gubik oil field (Gubik) to Anchorage. In, in 2021,
Doyon, Limited (Doyon) wants to ship to Fairbanks or Nenana,
there would not be a need for additional compression, but
Anadarko would still be using the service from Gubik to
Fairbanks and it would be paying the cost. The expansion from
Nenana to Anchorage would require additional expansion; if that
additional cost reached above the 115 percent cap, that segment
of the pipeline would also have a distance-sensitive rate for
Doyon. The illustrative numbers would be a $2 tariff with $1
from Gubik to Fairbanks, and $1 from Fairbanks to Anchorage with
the distance rate added on.
REPRESENTATIVE RAMRAS observed that this sounds very burdensome
for a company wanting to build a small diameter, in-state gas
pipeline a short distance. Looking at the whole state of
Alaska, he expressed his interest in a single pipe and some
small ships that could double the gross domestic product (GDP)
in Dillingham and have a single rate for the customer base in
Southcentral. Further, he opined that a pipe from Southcentral
to Fairbanks would have a tariff of $27 and Fairbanks customers
would continue to pay "the highest rates in North America for
natural gas." Representative Ramras then remarked:
The only way this works is in for a dime, in for a
dollar. Everybody pays the same. And that's why I
think a lot of this language is superfluous and
premature ... at the appropriate time I going to move
to strike Sec. 3.
8:37:55 AM
MR. BALASH continued to note that on page 4, line 28,
[paragraph] (6), subparagraphs (B) and (C), identify the manner
in which rolled-in pricing will occur. More specifically, (B)
identifies the manner in which the day-one shippers are
protected by the cap against an unreasonably high rolled-in
rate. On page 5, lines 23-28, subparagraph (C) identifies "how
you would roll-in partially" for the expansion capacity cost.
He re-stated that if the 115 percent threshold for the day-one
shipper is exceeded, the day-two shipper is going to benefit
from rolled-in rates up to the 115 percent cap, and then it will
pay incremental costs for the portion above 115 percent. Page
5, line 29, subparagraph (D), indicates that once the 115
percent rate is reached, the pipeline can offer shippers
incremental service. On page 6, lines 2-10, subparagraphs (E)
and (F) address how the pipeline company will conduct its
business with other commercial parties before the RCA.
8:42:01 AM
CO-CHAIR MILLETT observed that the RCA would regulate an in-
state pipeline; however, she asked whether RCA regulation would
be affected when the state begins exporting gas and FERC "takes
over".
MR. BALASH clarified that this bill governs a state right-of-way
lease for a pipeline that originates and terminates in the state
of Alaska. Regarding the possible regulation of this pipeline
by FERC, the question arises only if the gas is going to be
exported to another state. If the gas is exported to another
country, the liquefied natural gas (LNG) facility will be
regulated, but not the pipeline. Thus, if the pipeline is
engaged in inter-state commerce, a different body of law and
regulations will apply. The state's right-of-way leasing act
cannot undermine or reverse federal law.
CO-CHAIR MILLETT relayed that a representative of FERC indicated
that FERC could exert jurisdiction over the pipe. She said, "I
see Sec. 3 as just putting the cart before the horse ... someone
coming and wanting to engage in building something and they look
at this bill and look at this body of law and throw their hands
up."
MR. BALASH assured the members that the opportunity to
contractually bind a lessee to terms is at the time of the
right-of-way lease.
REPRESENTATIVE JOHANSEN pointed out the value of the
administration's review of the bill before members have further
discussions with FERC.
MR. BALASH called attention to page 6, line 11, that is an item
that is part of the body of protections in the bill that will
protect the interests of the users, and the customers, of the
pipeline. Returning to the example of a pipeline from Gubik to
Anchorage via the Richardson Highway, with Nenana gas coming in
through Fairbanks and going to Southcentral, and with Nenana gas
exported by a LNG project, the distance-sensitive nature of the
shipping arrangement on the pipeline raises the question of who
should pay for that service. He asked whether the Yukon River
villagers should pay for the cost of shipping Nenana gas to
Anchorage in order to export it to an outside market. If,
however, gas from Nenana results in rolled-in rates and the
overall tariff between Fairbanks and Anchorage is reduced, the
shippers from Gubik should benefit from spreading the cost. A
distance-sensitive rate would ultimately benefit the shippers at
Gubik and the consumers at the south end of the pipe. Moreover,
a distance-sensitive rate would avoid the commercial "finger
pointing" that takes place when two or more parties are involved
with the shipping arrangements and there are two or more
locations along the pipeline. Mr. Balash concluded that this is
policy "that helps prevent some of the commercial fights or
hurdles that ... might prevent parties from taking an interest
in moving their gas."
8:51:05 AM
Adjournment
The House Special Committee on Energy meeting was recessed at
8:51 a.m. to a call of the chair.
CO-CHAIR EDGMON called the meeting back to order at 5:04 p.m.
Present at the call back to order were Representatives Peterson,
Tuck, Dahlstrom, Ramras, Johansen, Millett, and Edgmon. Co-
Chair Edgmon then invited Mr. Balash to continue his testimony.
5:04:43 PM
MR. BALASH returned to HB 164 and indicated page 6, line 13,
[paragraph] (8) refers to Alaska hire, Alaska business, and
Alaska jobs. [Paragraph] (8) requires a commitment by the
lessee to hire qualified residents for pipe planning,
construction, and operation; to contract with local businesses;
to establish hiring facilities within the state; to use job
centers located within the Department of Labor and Workforce
Development (DL&WD); and to negotiate a project labor agreement
(PLA) before construction. Line 28, [paragraph] (10), requires
the lessee to commit to regulation by the RCA. This concluded
the review of Sec. 3.
5:07:13 PM
CO-CHAIR EDGMON asked Mr. Balash to continue to Sec 4.
5:07:25 PM
MR. BALASH said that Sec. 4 contains defined terms for the
right-of-way leasing act such as "commercially reasonable terms"
and "reasonable engineering increment". He also noted that the
body of state law that is the pipeline act is addressed in Sec.
5. The aforementioned body of law, AS 42.06, is used by the RCA
to regulate natural gas and oil transit pipelines in Alaska.
Furthermore, this section of statute would apply to a North
Slope natural gas pipeline that connects with a LNG facility.
Mr. Balash advised that the new language ensures that the
existing law applies, unless there is something in the proposed
section that provides otherwise.
REPRESENTATIVE TUCK asked for information regarding Certificates
of Public Convenience and Necessity (CPCNs).
5:09:31 PM
MR. BALASH explained that a CPCN is required for any pipeline
before it can be constructed and operated. The RCA issues the
certificate after it has determined that a project is in the
public interest, is needed, and is efficient economically.
Because pipelines are monopolies, they are regulated in this
way.
5:10:25 PM
REPRESENTATIVE TUCK then asked how the issuance of a CPCN
differs from the "assessment of market demand" called for in the
bill.
MR. BALASH clarified that the items in the bill are the kinds of
activities the pipeline company must engage in and undertake
after the pipeline is constructed. He then turned to page 9,
line 11, and noted that Sec. 6 allows for the RCA to provide a
conditional CPCN. For example, ANGDA obtained a conditional
right-of-way (ROW) across the Glenn Highway from Palmer to
Glennallen. This meant that once the conditions of the
conditional ROW are satisfied, the ROW can be issued. The state
makes allowances for conditional ROW(s) on state land, but there
is not a provision for a conditional CPCN. He advised the
committee that a conditional CPCN will allow an entity to
satisfy all of the other conditions of a CPCN, before financing
or gas commitments are in place.
5:13:43 PM
REPRESENTATIVE DAHLSTROM asked whether there have been
discussions within the administration about increasing the staff
at the RCA.
MR. BALASH expressed his understanding that applicants pay fees
for the work done at the RCA. He added that this bill has a
zero fiscal note from the RCA.
REPRESENTATIVE DAHLSTROM surmised that the RCA would be able to
hire additional staff with the fees paid by the regulated
community. However, she has been told there is a long wait for
a response from the RCA due to the lack of staff, even though
the staff is working long hours.
5:16:09 PM
MR. BALASH agreed that the commission is challenged with
staffing issues; in fact, the commission is undergoing a
classification study and a review of its revenue.
MR. BALASH, in further response to Representative Dahlstrom,
explained that the five commissioners at the RCA are nominated
by the governor and confirmed by the legislature. Once
confirmed, statue allows for the removal of a commissioner only
for cause, in order to keep the commission independent of
political influence. However, the commission is accountable
through the budget process, although some tasks are assigned
through state law and an unfunded mandate exists.
5:19:09 PM
REPRESENTATIVE DAHLSTROM re-stated the need for additional
staffing, including an executive director.
CO-CHAIR MILLETT asked Mr. Balash to provide an example of
"sanctioning".
MR. BALASH advised that the reference to sanctioning has to do
with the work plan and the schedule that calls for major permits
to be acquired and customers and suppliers of gas identified by
mid-2011. At that point, a sanctioned decision will be made.
In further response to Co-Chair Millett, he explained that the
law has to be written generally and not for a specific entity.
The proposed law states that an "applicant" can apply to the RCA
for a conditional CPCN. The RCA does not sanction the project,
but issues the certificate that identifies the route, the size
of the pipe, and other details; however, if the applicant has
not obtained or committed financing, or does not have firm
commitments for the transportation of gas, a conditional
certificate may be issued. The intent is to allow an entity to
obtain permits, sanction the project after it has obtained
financing, and begin ordering materials and labor. After all of
the conditions are met, the RCA would issue the final CPCN. In
further response, he gave the example of a pipeline to the Kenai
Peninsula. He surmised that Armstrong Oil and Gas, Inc.,
(Armstrong) which has a discovery there, could get a conditional
certificate under the proposed statue, even though it is not
going to build the pipeline.
5:25:06 PM
CO-CHAIR MILLETT asked what the process would be without the new
statue.
MR. BALASH expressed his understanding that a company must meet
the standard of fit, willing, and able to apply for a CPCN from
the commission. If, in the example, Armstrong wanted to have a
pipeline built to transport its gas, it would have to
demonstrate that it could build the pipeline.
CO-CHAIR MILLETT then asked why there is a need for a
conditional certificate when there is already a procedure in
place for the RCA to authorize this specific pipeline project.
MR. BALASH stressed that the language in the proposed
legislation is for any pipeline, not just the bullet line.
Issuance of a conditional certificate allows an applicant to get
a head start on the RCA process without financing and firm
transportation commitments.
5:27:52 PM
CO-CHAIR MILLETT opined that this is the administration's
version of FERC pre-filing.
MR. BALASH said no. Pre-filing to FERC includes the greater
responsibilities of all of the federal environmental permitting
for an inter-state gas pipeline.
CO-CHAIR MILLETT reviewed the similarities in the processes of
obtaining the conditional certificate and pre-filing.
MR. BALASH acknowledged the processes are not dissimilar, but
different.
5:29:43 PM
REPRESENTATIVE DAHLSTROM asked for the definition of "sanction".
MR. BALASH said sanction is a term commonly used to indicate
that a project has obtained whatever approvals are necessary
from the entity that will build it.
5:31:40 PM
MR. BALASH, in further response to Representative Dahlstrom, re-
stated his understanding that the determination of whether a
company is fit, willing, and able is made by the RCA as directed
by state law.
5:31:46 PM
REPRESENTATIVE DAHLSTROM gave an example of a company such as
Armstrong, applying to the RCA and being determined to be fit,
willing, and able. She then asked whether this legislation was
needed.
5:32:16 PM
MR. BALASH expressed his belief that there is no pre-filing type
of step that can be taken to the RCA at this time. In the
example of Armstrong building a pipeline to the Kenai Peninsula,
that project would be a shorter, smaller, pipeline and a less
complicated endeavor. To satisfy the commission's standards for
the Kenai project is a different question than building a multi-
billion dollar pipeline that would travel 800 miles over two
mountain ranges. He opined that the bullet line is called
small, but is not.
5:35:12 PM
MR. BALASH, in response to Representative Dahlstrom, pointed out
that the need for the proposed legislation is based on the
"profile" of the applicant; for example, the applicant's
capabilities and its demonstrated ability to build and deliver a
project on time and on schedule, and a proven management record.
5:35:16 PM
CO-CHAIR MILLETT asked whether two competing pipelines could be
issued conditional certificates for the same route.
MR. BALASH advised that the proposed statue does not make a
certificate exclusive. However, a company that has the ability
to finance the project, but has not made the commitment for
financing, cannot be considered fit, willing, and able by the
RCA. The proposed legislation would allow an entity to apply
for the conditional certificate without the commitment to
finance the project.
MR. BALASH, in further response to Co-Chair Millett, said, "I'm
not aware of anything that would prohibit the commission from
issuing two conditional certificates."
5:37:52 PM
REPRESENTATIVE RAMRAS observed that the emerging discussion
supports his opinion that HB 164 is perhaps completely
superfluous to the process of building an in-state gas pipeline
and that he will vote against it. He stated his intent to offer
two amendments after public testimony is heard. The first
amendment will be to delete language from line 25, page 2,
through line 27, page 6, and renumber accordingly. He then
called attention to Sec. 2 of the bill, beginning on page 2,
line 6, and remarked:
In place of the covenant established under AS 38.35,
and it refers to the commissioner, and if you look at
the sectional analysis ... it's from the commissioner
of DNR ... it says the commissioner shall require the
lessee to agree that it will not transfer, assign,
pledge, or dispose of in any manner, directly or
indirectly, its interest in a conditional right-of-way
lease or a pipeline subject to the conditional lease,
unless the commissioner, after considering the public
interest and issuing written findings to substantiate
a decision to allow the transfer-that would be the
transfer from the lessee-authorizes the transfer. And
what we're checking on with leg legal right now is
whether it's possible to transfer that authority from
the commissioner of DNR ... to the legislature, so
that the legislature may weigh-in on who is going to
have the opportunity to build a gas pipeline.
REPRESENTATIVE RAMRAS then asked for Mr. Balash's point of view
on whether HB 164 creates a separation of powers issue, and
whether [the new section] is a conforming amendment.
MR. BALASH responded that the conforming amendment occurs on
page 2, lines 4 and 5, and 38.35.121 is applicable. The new
section, 38.35.121, is the new section in Sec. 3 being added to
the Right-of-Way Leasing Act. Furthermore, if the amendment to
delete this section is successful, the language in Sec. 2 and in
Sec. 1 will not be necessary.
REPRESENTATIVE RAMRAS pointed out that the proposed amendment
leaves lines 18-24 and paragraph (10), page 6, intact. He then
asked:
If Sec. 3 stays intact, and it's greatly reduced to
just .121 and number 10-which would be renumbered-and
if that keeps intact the conforming language on line 4
and 5, and then why not, down here in [line] 8, 9, 10,
and 11, 12, can the legislature not participate in the
transfer. Why do we cede over all authority to the
commissioner of DNR?
5:42:55 PM
MR. BALASH reminded committee members that the statute that
granted powers to the commissioner to manage the state's lands
was first adopted in 1972, and amended in 1973 and 1987. He
opined the commissioner already has the authority.
REPRESENTATIVE RAMRAS re-stated his particular interest in page
2, line 12, where the bill states that the commissioner
"authorizes the transfer". He suggested this question of the
separation of powers issue and "policy call" should be further
addressed at the appropriate time.
MR. BALASH stated his interest in the response from Legislative
Legal and Research Services.
REPRESENTATIVE PETERSEN returned attention to the subject of the
conditional certificate and asked whether a company that does
not have committed financing or firm transportation commitments,
but that holds a conditional certificate, would have an
advantage to get financing and shipping commitments.
MR. BALASH advised that holding a conditional certificate would
eliminate some of the regulatory uncertainty that a company
might face when trying to attract financing, shipping
commitments, and investors. He agreed with Representative
Peterson that the intent is to lower the risk.
CO-CHAIR EDGMON asked for a summary of the bill's purpose.
MR. BALASH informed the members he will summarize the purpose of
the bill at the end of his testimony. He then said that Sec. 7
addresses the power of the RCA to enforce the provisions in the
Right-of-Way Leasing Act; for example, the RCA has the authority
to enforce a contract term between the state and the pipeline
company if the executive branch of the state does not enforce
said contract term. Sections 8 and 9 address the question of
"common carrier versus contract carrier." He explained that
common carrier is the gold standard of open access; thus any
company that tenders product at the entry point of the pipeline
can have access, whether the pipeline is full or not. In fact,
if the pipeline is full, the space is prorated between tenders
to make room. The reason for this policy is to eliminate
hurdles to the development of the state's oil and gas resources,
and the possibility that a pipeline can be used to restrict
access to markets. When the administration discussed this
project with commercial parties one of the parties, Anadarko
Petroleum Corporation (Anadarko), expressed concern that if its
gas were prorated it would not be able to deliver a set quantity
of gas for a specific period of time. He informed the committee
that the administration solicited interested parties to ask what
was needed within the regulatory framework to advance the
project. Mr. Balash relayed that the bill gets to the heart of
the commercial issues and allows for reconciliation between the
common carrier obligations of the pipeline and the Right-of-Way
Leasing Act, and the necessity of firm transportation
commitments and contracts for shippers.
CO-CHAIR EDGMON asked for a summary.
5:52:00 PM
MR. BALASH concluded that there is a conflict between the Right-
of-Way Leasing Act, and the pipeline act, that needs to be
reconciled in order for private parties to enter into the
commercial contracts necessary to facilitate a project like
this.
5:52:25 PM
REPRESENTATIVE RAMRAS thanked the presenter and asked for him to
be available for rebuttal comments when the amendments are
offered.
CO-CHAIR EDGMON called for public testimony. Hearing none,
eaHearing public testimony was closed.
REPRESENTATIVE RAMRAS relayed an opinion from Don Bullock,
Legislative Legal Counsel, Legislative Legal and Research
Services, Legislative Affairs Agency (LAA), that there is a
precedent for the transfer of authority from a commissioner to
the legislature. As this may affect the bill, Mr. Bullock
suggested that a conceptual amendment should be offered.
The committee took an at-ease from 5:55 p.m. to 6:00 p.m.
6:00:38 PM
REPRESENTATIVE RAMRAS moved Conceptual Amendment 1.
CO-CHAIR EDGMON objected for discussion purposes.
REPRESENTATIVE RAMRAS said Conceptual Amendment 1 is the
deletion within Sec. 3 from page 2, line 25, through page 6,
line 27, and renumbering accordingly.
MR. BALASH observed that the items that are proposed for
deletion, particularly from page 2, line 25, paragraph (1) and
through page 4, line 25, paragraph (6), have to do with the
protection of access to the pipeline in a "predictable and
reasonable fashion." With the elimination of the conventional
common carrier code and body of law, the state is losing the
access provided a common carrier, and not replacing it with
anything. With this change, the question is who will own the
pipe and make decisions about when and how to expand the pipe.
The state could rely on the public interest powers of the RCA,
or the legislature could choose to "describe the yardsticks that
the RCA will use to make those decisions."
6:03:53 PM
REPRESENTATIVE RAMRAS opined that the legislation, "as it would
be constructed by putting a greater burden on the RCA ... is
better than putting this burden, which might be perceived as an
impediment for a private sector entity, in the meantime, to be
attracted to this project."
CO-CHAIR EDGMON asked for the administration's view of the
amendment's impact to the legislation.
MR. BALASH lamented that the two parties interested in this
project are not present to comment. However, a fair
characterization is to say that Anadarko is similarly concerned
with preserving access and expansion capabilities; moreover, as
Anadarko is potentially an anchor participant of the project,
this is "a big deal to them." How the state will, or will not,
protect access to a pipeline could weigh heavily on Anadarko's
drilling decisions about the winter drilling season.
6:06:12 PM
REPRESENTATIVE DAHLSTROM asked whether Anadarko and ENSTAR
Natural Gas Company (ENSTAR) were invited to testify.
CO-CHAIR MILLETT confirmed that invitations were extended and
there was no response.
6:06:49 PM
CO-CHAIR EDGMON suggested the hearing "stand down" to wait for
additional participation by the industry.
REPRESENTATIVE DAHLSTROM expressed her surprise that the parties
are not present.
REPRESENTATIVE RAMRAS opined it is difficult for companies to
come forward and stand in conflict with the administration and
the legislature, especially this late in the session. He
maintained his view that the amendment improves the posture of
the bill and does not impose an impediment to Doyon or
ConocoPhillips, Alaska (ConocoPhillips).
REPRESENTATIVE JOHANSEN observed that the companies were aware
the bill is up and encouraged the committee to move forward with
the amendment process.
MR. BALASH assured the members that the administration is not
expecting HB 164 to pass both bodies this year; in fact, whether
the amendment is adopted or not, these same issues will be
discussed in the next committee of referral.
6:10:32 PM
REPRESENTATIVE TUCK asked whether Anadarko and ENSTAR
participated in the crafting of HB 164.
6:11:00 PM
MR. BALASH affirmed that Anadarko and ENSTAR were approached by
the administration about what was needed to be addressed in
state law to advance projects under consideration. The parties
agreed that common carrier versus contract carrier service is a
critical component that must be addressed during the next year.
He declined to say what other issues flowing from the change to
contract carrier status are most important to the parties.
CO-CHAIR EDGMON understood that the progress of this bill will
have an impact on drilling plans.
MR. BALASH confirmed that Anadarko had three wells this year and
brought up a second rig to conduct exploration work this season.
Anadarko's interest in pursuing a new plan next winter is partly
motivated by the prospect of two options: a large project in the
North American region and an in-state gas pipeline as well. Mr.
Balash stated that Anadarko's reaction to the amendment to the
bill is unknown to him, but he would be surprised if it were
positive.
6:14:10 PM
REPRESENTATIVE RAMRAS disagreed and said that the bill would not
have a meaningful impact on Anadarko's drilling plans. In fact,
two different bills under discussion during interim allow for a
more dynamic conversation.
REPRESENTATIVE TUCK expressed his desire to hear from the
industry and noted that the committee schedule change may have
not reached representatives of the interested parties.
CO-CHAIR MILLETT responded that representatives from the
companies were in the building today and that they did not take
the opportunity to testify. She agreed with Representative
Ramras that decisions reached today would not affect drilling
plans. She asked whether Mr. Balash knew of any third party
pipeline companies that would build the pipeline and that are
comfortable with the protections offered by HB 164.
MR. BALASH stated that ENSTAR was interested in being the
pipeline builder. His understanding was ENSTAR left the state
and Anadarko to work out these concerns.
REPRESENTATIVE JOHANSEN observed he has zero concerns about the
effect of the bill on drilling plans.
6:19:23 PM
REPRESENTATIVE DAHLSTROM clarified that she was comfortable with
moving the bill forward.
REPRESENTATIVE TUCK noted he was not part of the AGIA process;
however, in the current statute common carrier provisions are
very specfic. He observed that contract carriers of gas are
more typical than common carriers; in fact, common carriers do
have protections for consumers and the administration is trying
to come up with a method to set parameters for contract carriers
that will benefit Alaskans. A contract carrier may have control
over the line and, therefore, have control over the supply of
gas and rates for the consumers. He then reviewed many of the
provisions of the bill. He stressed the value of the PLA and
local training and hiring provisions that require one-year
Alaska residency. Representative Tuck then noted his opposition
to Conceptual Amendment 1.
6:24:47 PM
REPRESENTATIVE RAMRAS stated his regret over his vote on AGIA.
CO-CHAIR EDGMON removed his objection to the motion.
REPRESENTATIVE TUCK objected.
A roll call vote was taken. Representatives Dahlstrom, Ramras,
Johansen, and Millett voted in favor of Conceptual Amendment 1.
Representatives Tuck, Petersen, and Edgmon voted against it.
Therefore, Conceptual Amendment 1 was adopted by a vote of 4-3.
6:26:39 PM
REPRESENTATIVE RAMRAS moved Conceptual Amendment 2.
CO-CHAIR MILLETT objected for the purpose of discussion.
REPRESENTATIVE RAMRAS stated that the amendment "references AS
38.35.100". The language affected is on page 2, line 12, that
read, "... authorizes the transfer" and conceptually
substitutes, "so that the final authority for the decision to
authorize the transfer would rest with the legislature."
Additionally, on page 2, line 13, conforming language
substitutes "commissioner" with "legislature". Representative
Ramras explained that the intent of the amendment is that the
commissioner would be empowered to make the best interest
finding and subsequently, the pipeline proposal would come back
to the legislature for the legislature to affirm the transfer.
6:28:37 PM
CO-CHAIR EDGMON clarified that the amendment is in addition to
page 2, lines 2-16.
REPRESENTATIVE RAMRAS agreed that the amendment integrates into
Sec. 2, where applicable. He then re-stated the intent of the
amendment.
REPRESENTATIVE TUCK asked Mr. Balash for an example of a
commissioner making a transfer authorized by the existing
statute.
MR. BALASH said he was not aware of an example, but would
research the question. He pointed out that the provision
applies only to a conditional lease; in fact, a regular lease
would be in the hands of the commissioner.
6:31:07 PM
CO-CHAIR EDGMON asked about the possibility that the legislature
is not in session to affirm the transfer in a timely manner.
MR. BALASH surmised the amendment is at odds with any attempt to
speed up the processes.
6:31:40 PM
REPRESENTATIVE TUCK asked whether the sale of the Healy Clean
Coal Plant (HCCP) was authorized through the legislature or by a
commissioner.
REPRESENTATIVE RAMRAS said he was unsure.
REPRESENTATIVE TUCK offered an amendment to the amendment.
[Representative Tuck's amendment to the amendment was tabled due
to the arrival of Mr. Bullock.]
REPRESENTATIVE JOHANSEN asked Mr. Bullock to review the
amendment.
6:34:48 PM
DON BULLOCK, Attorney, Legislative Legal and Research Services,
Legislative Affairs Agency, informed the committee that this
section is in the bill "solely for the reference to 121." He
continued to explain that this section has to do with the
granting of a conditional ROW that is subject to certain
conditions, and that will be transferred.
REPRESENTATIVE RAMRAS pointed out that the previous amendment
deleted a great deal of Sec. 3; in fact, all that is intact in
Sec. 3 are page 2, lines 18-24 and page 6, lines 28-29.
MR. BULLOCK acknowledged the change and said, "... so Sec. 2,
whatever is left of [38.35.121], it just added a reference in
[AS 38.35.100(d)], which is in Sec. 2 of the bill, to include
that in addition to the other covenants that were required under
120, which are already in the law." He expressed his
understanding that the proposed amendment wants legislative
approval, and asked whether the intent was that there is
legislative approval for what [sub section] (d) addresses, which
is for the lessee to agree that it will not transfer, assign,
pledge, or dispose of in any manner, its interest in a
conditional right-of-way lease, or whether the intent was for
the granting of the lease itself to be subject to legislative
approval.
REPRESENTATIVE RAMRAS responded that the amendment addresses
"all of [Sec.] 2."
MR. BULLOCK pointed out that [AS 38.35.015], which is not in
this bill, addresses the powers of the commissioner; in fact,
the pipeline right-of-way act as it is grants the commissioner
all of the powers necessary to implement the policy, purposes,
and provisions of the chapter and to serve the public interest,
convenience, and necessity. He concluded it is a broad grant of
power to the commissioner and it is this section in the right-
of-way act that the amendment should address.
6:38:31 PM
REPRESENTATIVE RAMRAS proposed "... that this conceptual
amendment be broadened out to all of Sec. 2, Sec. 2, (A), (B),
(C) and (D). It's the same basic notion." The intent is to
have the legislature more involved in this process, not in
gathering information, but in the disposition of the written
findings.
6:39:37 PM
MR. BULLOCK compared the transfer to AGIA and other land
transfers where the legislature gets involved in certain
executive actions. He agreed that the proposed language raises
the separation of powers issue; for example, in AGIA, the
legislature approved the license and the governor consented. He
then suggested that the governor may be interested in consenting
to the approval in this bill.
6:40:23 PM
CO-CHAIR MILLETT asked whether legislative approval of the
transfer is similar to University of Alaska, Alaska Railroad,
and mental health land transfers.
MR. BULLOCK regretted that he could not say yes or no.
REPRESENTATIVE JOHANSEN observed that the legislature is
involved in land transfers every year.
REPRESENTATIVE RAMRAS opined this is policy call, and
legislators are policy makers; thus the amendment says that the
legislature will be more involved in the process. Furthermore,
adopting Conceptual Amendment 2 is consistent with engaging the
legislature in significant matters and is good public policy.
6:42:38 PM
MR. BULLOCK, in response to Co-Chair Edgmon, re-stated that the
right-of-way act gives the commissioner broad powers to
implement and administer the act. It is necessary to amend the
section so that the commissioner does not have the full
authority in issuing the right-of-way lease. In addition, AS
38.35.100, subsection (b), directs that the commissioner can
grant an application; therefore, it would have to be determined
at what point the application comes to the legislature for
approval. Mr. Bullock suggested that the commissioner could
present an application to the legislature subsequent to his or
her reporting favorable findings.
CO-CHAIR MILLETT clarified the need for conforming language.
MR. BULLOCK then pointed out the potential problem of "timing"
since the legislature does not meet from May to January.
6:45:14 PM
REPRESENTATIVE TUCK expressed his understanding of the intent of
the amendment; however, he opined it is undesirable to have
legislative authority over the decision on an application, or
whether the applicant is fit, willing, and able to perform. He
pointed out that the amendment really involves the transfer of
the lease, which takes place after the entities have met all of
the conditions, and questioned the need for legislative
oversight.
6:46:35 PM
REPRESENTATIVE RAMRAS stressed that the adoption of the
conceptual amendment will allow the drafters to draft a
committee substitute (CS) that provides for the expansion of
powers, and that will allow the legislature to participate in
the process of the in-state gas pipeline. He remarked:
I'm very happy to have a professional staff develop a
best interest findings and make some of the other
determinations, but I think that the co-equal branch
of government, the legislative branch, should weigh-in
on an issue of this magnitude at the right time. And
I think that Conceptual Amendment 2, as it relates to
[AS 38.35.100] ... is good public policy ...
CO-CHAIR MILLETT removed her objection and said the
legislature's ability to deal with lease transfers is
appropriate.
6:49:23 PM
REPRESENTATIVE JOHANSEN objected. He commented that [AS Sec.
38.35.100, subsection (a)] "[has] a lot rolled-in here that is
all just going right to the commissioner of DNR." He asked Mr.
Bullock whether he was comfortable drafting the conceptual
amendment.
MR. BULLOCK acknowledged that although the concept is simple,
the drafting may be complicated because the authority is spread
throughout [AS 38.35], the right-of-way act. He called
attention to [AS 38.35.017] which precludes the northern route
for the pipeline. This is an example of a statute where the
legislature has set the parameters for the approval of the ROW
without raising the separation of powers issue; thereby the
commissioner issues approval, but only within the parameters
established by the legislature. Mr. Bullock advised that this
alternative would be "less subject to challenge than the other."
6:52:04 PM
REPRESENTATIVE TUCK appreciated the point of the conceptual
amendment; however, he questioned whether the legislature should
be approving application processes and asked for clarification
on the scope of the amendment.
REPRESENTATIVE RAMRAS acknowledged the complexity is in
determining which part applies to the commissioner and which
part applies to the legislature. Although there may be an
alternative statute, the point of the amendment remains the
legislative intent of involving the legislative branch. He
expressed his understanding that the best interest findings fall
to the commissioner of DNR.
REPRESENTATIVE PETERSEN observed that the existing laws allow
for expediency in processing applications, reducing the
influence of politics on the licensing decision, and ensuring
that professionals are making these decisions. He recommended
looking at the CS before gutting the bill.
6:55:45 PM
REPRESENTATIVE RAMRAS advised that the purpose of the committee
is to change a bill to better express the wishes and the policy
of the legislative branch. In fact, to do less is to shirk the
responsibility of the legislature.
REPRESENTATIVE JOHANSEN pointed out that calling a special
session to deal with important issues is simple. He then
removed his objection.
Hearing no further objection, Conceptual Amendment 2 was
adopted.
CO-CHAIR MILLETT asked Mr. Bullock for the difference between
the conditional certificates proposed in the bill and the
conditional certificates authorized by AS 38.35.100 that are
subject to the applicant being fit, willing, and able to
perform.
6:59:24 PM
MR. BULLOCK explained that the conditional lease mentioned in
[AS 38.35.100 (c)] is not affected by this draft. Regarding the
conditional lease described in the bill, he said the
administration "may be better able to fill you in on what their
intent is."
[HB 164 was held over.]
7:03:21 PM
ADJOURNMENT
The House Special Committee on Energy meeting was recessed at
7:03 p.m. to a call of the chair. [The meeting was never
reconvened.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB164 Fiscal Note1.pdf |
HENE 4/15/2009 4:00:00 PM HENE 4/16/2009 7:30:00 AM |
HB 164 |
| HB164 Fiscal Note2.pdf |
HENE 4/15/2009 4:00:00 PM HENE 4/16/2009 7:30:00 AM |
HB 164 |
| HB164 Sectional.pdf |
HENE 4/15/2009 4:00:00 PM HENE 4/16/2009 7:30:00 AM |
HB 164 |
| HB164 Sponsor Statement.pdf |
HENE 4/15/2009 4:00:00 PM HENE 4/16/2009 7:30:00 AM |
HB 164 |