Legislature(2009 - 2010)BARNES 124
03/28/2009 10:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB164 | |
| HB163 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 163 | TELECONFERENCED | |
| *+ | HB 164 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 28, 2009
10:00 a.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Nancy Dahlstrom (via teleconference)
Representative Kyle Johansen
Representative Jay Ramras (via teleconference)
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
HOUSE BILL NO. 163
"An Act clarifying the purpose of the Alaska Natural Gas
Development Authority; and relating to definitions of certain
terms in AS 41.41."
- 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
BILL: HB 163
SHORT TITLE: ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
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
WITNESS REGISTER
JOE BALASH, Special Staff Assistant for Energy and Natural
Resource Issues
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented HB 164 and HB 163 on behalf of
the governor.
HAROLD HEINZE, CEO
Alaska Natural Gas Development Authority (ANGDA)
Office of the Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified during the hearing on HB 163.
ACTION NARRATIVE
CO-CHAIR CHARISSE MILLETT called the House Special Committee on
Energy meeting to order at 10:00 a.m. Representatives Petersen,
Tuck, Edgmon, Ramras (via teleconference), and Millett were
present at the call to order. Representatives Johansen and
Dahlstrom (via teleconference) arrived as the meeting was in
progress.
HB 164-IN-STATE PIPELINES: LEASES; CERTIFICATION
CO-CHAIR MILLETT announced that the first 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."
10:00:53 AM
JOE BALASH, Special Staff Assistant for Energy and Natural
Resource Issues, Office of the Governor, informed the committee
the bills presented are components of a three-part plan to
initiate an in-state natural gas pipeline project. The first
component is a funding request to initiate work needed to define
the need for, and the delivery of, natural gas to Alaskans.
This work includes; an alternatives analysis, selection of a
route, applications for permits and rights-of-way,
identification of the source of gas and potential customers, and
the eventual sanctioning of a project. The work effort is led
by Harry Noah, Project Director. Mr. Balash continued to
explain the other components of the plan are HB 163 and HB 164.
House Bill 164 makes the changes in the Pipeline Act that are
necessary to facilitate the commercial relationships for a
privately constructed and operated pipeline. He recalled that
discussions with ENSTAR Natural Gas Company and Anadarko
Petroleum Corporation about a bullet line from Gubik field to
Southcentral began in December 2008. Those discussions centered
on a specific project; however, prior to the introduction of the
bill, the governor directed that the changes made by HB 164 must
be applicable to all in-state pipelines. He acknowledged that
the proposed legislation was developed without "having done a
lot of the homework to understand ... older infrastructure and
preexisting relationships."
10:05:41 AM
MR. BALASH pointed out HB 164 is primarily about access and
contractual rights to capacity in a pipeline. Historically,
Alaska's right-of-way leasing act requires the use of common
carrier service to obtain a lease to build a pipeline. A common
carrier means that any entity with a product will be able to
ship, regardless of the impact on the existing shippers.
However, ENSTAR and Anadarko expressed concerns that after
spending billions of dollars to develop a field, they wanted a
contractual right to capacity in the pipeline. Therefore, the
requirement in state law that a pipeline operate as a common
carrier needs to be changed. Mr. Balash explained that Title 42
of the Pipeline Act provides for firm [transportation] service
under a contract, but does not protect against proration.
10:08:46 AM
MR. BALASH noted that the first two sections of the bill make
technical references to other changes in the bill. Section 3
creates a new set of covenants required for in-state pipelines
only. These covenants are important as the state "[is] stepping
down from that gold standard of common carrier to a form of
contract carriage, we wanted to make sure that access for new
exploration, new development, and new deliveries, was going to
be possible." The covenants require that the party agrees to
the following: open seasons on a regular basis;
nondiscriminatory treatment of shipping commitments; expansions;
transparency in engineering increments; expansions on
commercially reasonable terms; commit to rolled-in rates; offer
a distance sensitive tariff; commit to Alaska hire; commit to a
project labor agreement; and commit to be regulated by the
Regulatory Commission of Alaska (RCA). Mr. Balash noted the
covenants are based on the "must haves" in the Alaska Gasline
Inducement Act (AGIA) of 2007.
10:11:45 AM
CO-CHAIR MILLETT asked whether there were circumstances under
which this project would be regulated by the Federal Energy
Regulatory Commission (FERC) and not the RCA.
10:12:17 AM
MR. BALASH directed attention to Sec. 3, lines 20-22, of the
bill and pointed out the proposed legislation identifies a
pipeline that is subject to intrastate jurisdiction, not
interstate jurisdiction. Under certain circumstances, FERC may
have jurisdiction over a pipeline; for instance, one that
crosses the state border. In addition, FERC does have "citing
authority" for liquefied natural gas (LNG) facilities; however,
FERC's authority in these instances is not entirely clear.
10:14:57 AM
REPRESENTATIVE JOHANSEN questioned the economic viability of an
intrastate pipeline that promised to begin and end in Alaska.
He suggested that FERC would get involved if at some time the
gas was flowing out of state in order to find a market and
secure financing.
10:16:43 AM
MR. BALASH assumed the question is, "What if the pipeline is
going to move more gas than is used here in Alaska?" He
observed when the pipeline service ends, the gas has to go
somewhere, such as manufactured into a product, or converted
into LNG. The critical question is whether the export will go
to East Asia or to the Lower 48. The FERC would assert
jurisdiction as soon as the product or the gas crosses state
lines; however, until more is known about the commercial aspects
of the project, it will be difficult to determine whether FERC
does or does not have jurisdiction. Mr. Balash advised the
aforementioned determination, and the commercial aspects of the
project, will be identified during the next two years.
10:18:16 AM
REPRESENTATIVE JOHANSEN opined until the "whole picture comes
together, we don't know where FERC comes in, we don't know how
far back up the pipeline they go...." In fact, FERC's
involvement will be unknown until much, much, later, he said.
10:19:14 AM
MR. BALASH concurred.
10:19:20 AM
REPRESENTATIVE PETERSEN asked whether building a pipeline across
federal land would automatically involve FERC.
10:19:44 AM
MR. BALASH said that crossing federal land does not
automatically bring in FERC jurisdiction; FERC jurisdiction is
determined by Sec. 7 of the Natural Gas Act (NGA) that regulates
the interstate transportation of natural gas.
10:20:19 AM
CO-CHAIR EDGMON asked whether the state has sufficient
information to construct enabling legislation for future work
with a private partner.
10:21:01 AM
MR. BALASH said the administration knows there are parties
exploring for gas and who want to develop fields and "count on
capacity." This legislation allows changes in the leasing
statute and pipeline regulation statute for the kind of
commercial contracts required to protect the shipper, and those
who are seeking financing and contracts. In the event of the
construction of an in-state line, this body of changes would
create a framework familiar to those who would operate a federal
interstate project.
10:22:11 AM
REPRESENTATIVE JOHANSEN gave the example of a pipeline project
built without FERC regulation, but that is expanded at a later
date to an export market. "Does FERC jump in then?" he asked.
10:23:26 AM
MR. BALASH acknowledged that the proposed legislation is not
specific to a bullet line, but is applicable to a pipeline
regardless. In fact, this is an effort to craft an overall
state regulatory structure with few differences from FERC
regulations, and in the event FERC does step in, there will be
few disruptions.
10:24:36 AM
REPRESENTATIVE JOHANSEN observed movement away from the bullet
line concept allows for flexibility in pipeline routes; however,
"it all comes down to" the cost of construction. He surmised
the pipeline corridor is the easiest and most logical route.
10:25:34 AM
MR. BALASH said the administration has been working on that
question. Typically, the shortest pipeline is the least
expensive; however, the differences in cost are not known at
this time. Mr. Noah will be undertaking the determination of
the cost of each alternative route.
10:26:53 AM
REPRESENTATIVE JOHANSEN asked whether the bullet line follows
the existing pipeline.
MR. BALASH said the all-Alaska pipeline would follow the Trans-
Alaska Pipeline System (TAPS) corridor to a liquefaction plant
in Valdez. The bullet line would travel down the Dalton Highway
to Fairbanks, and then follow the Parks Highway to Southcentral.
10:28:03 AM
CO-CHAIR MILLETT asked for the administration's plan on what to
do with the excess capacity.
MR. BALASH pointed out the first question is to determine what
is still available from Cook Inlet. If North Slope gas is going
to replace Cook Inlet gas, there will need to be a transition
period. He gave the example of a pipeline that cost $3 billion
and has a tariff computed on how much gas is traveling through
the pipeline. The less gas traveling through equals a higher
tariff, and if the price is too high, companies will be
reluctant to commit gas. The tipping point is estimated to be
about 400 million to 500 million cubic feet (MMcf) per day;
however, the demand for natural gas in Southcentral at this time
is about 200 MMcf per day. Thus there needs to be an increase
in industrial use to get enough throughput in the pipe for an
economical tariff.
10:31:42 AM
CO-CHAIR MILLETT surmised the administration is looking for an
anchor industry such as the export of gas by ConocoPhillips
Alaska, Inc. She opined the project will have FERC involvement
if there is excess capacity or if the state exports LNG.
10:32:36 AM
MR. BALASH observed that the present system of pipelines in Cook
Inlet supports the LNG plant and is not regulated by FERC.
CO-CHAIR MILLETT cautioned that FERC has considered involvement
with the LNG plant and with an in-state pipeline.
MR. BALASH acknowledged that possibility, and assured the
committee the administration is working to prevent that from
happening; however, a change to FERC jurisdiction will not
require a "sea change in approach, or planning, or reordering
commercial terms between the parties."
10:34:03 AM
REPRESENTATIVE PETERSEN recalled the LNG export license was only
extended until 2011. He assumed the export license would need
to be extended further.
MR. BALASH agreed. Depending on the availability of gas, the
facility's status may change from full operation to "warm
status." In fact, all of the options present commercial
challenges and a transition period.
10:35:33 AM
REPRESENTATIVE JOHANSEN noted supporters of the in-state gas
line have suggested bringing natural gas to Southeast as a way
to increase demand. He asked whether the administration has
plans to gasify parts of the state such as Nome, the Aleutian
Chain, or Southeast to increase demand.
10:37:51 AM
MR. BALASH spoke of the opportunity to deliver natural gas or
propane to communities as an alternative to diesel. The
administration sees an imperative to move rural communities away
from the use of diesel wherever possible. Whether that is
suitable for Southeast, Mr. Balash would not say; however, there
is a propane distributor that believes in the possibility.
10:39:41 AM
REPRESENTATIVE JOHANSEN expressed his belief that "You've got to
find a place to put the gas and if you can't do it in-state,
you've got to do it out-of-state and ... we're right back where
we started from."
10:40:27 AM
MR. BALASH clarified that exporting gas from Alaska does not
automatically "trigger" FERC jurisdiction. If the gas has an
international destination only, FERC will not have jurisdiction,
as in the case of a long-term contract with an Asian buyer.
10:41:47 AM
REPRESENTATIVE JOHANSEN recalled a lot of discussion about the
potential natural gas markets in the Midwest.
MR. BALASH responded that the pursuit of a large diameter
pipeline is, and remains, the priority of the administration.
However, because that project is not a certainty, the
administration wants to be prepared on a parallel path with an
in-state line.
10:43:28 AM
REPRESENTATIVE JOHANSEN asked whether Congress and
constituencies throughout the U. S. can be convinced of the
urgency for both the big pipeline project and [the extension of]
the export license.
MR. BALASH said absolutely. The potential for Alaska to deliver
gas from a variety of sources is unparalleled, particularly as
natural gas hydrates become more commercial. The large diameter
gas pipeline will require 55 trillion cubic feet of gas over 30
years from the North Slope. At this time there are 34 trillion
cubic feet of known reserves; furthermore, 200 trillion cubic
feet is expected to be found in the future. Mr. Balash assured
the committee of the opportunity for Alaska gas to flow to
Midwestern markets and potentially to premium Pacific Rim
markets.
10:46:18 AM
REPRESENTATIVE TUCK asked whether existing pipelines in the
state operate with common carriers.
MR. BALASH confirmed that pipelines have common carrier
covenants on their state leases; however, in some cases there
are legal arrangements around the covenants.
10:47:12 AM
REPRESENTATIVE TUCK asked for an example.
MR. BALASH said he could research disputes between parties on
the common carrier covenants.
10:48:11 AM
REPRESENTATIVE TUCK asked whether disputes were usually over
access to the pipeline.
MR. BALASH expressed his understanding that a third party
shipper wanted to use an original party's pipeline to move their
gas into a market. "As, I think Aurora has gone sort of right
over the top of ENSTAR in using the ENSTAR common carrier
pipelines, but to move gas to customers, and sort of eliminate
ENSTAR as the middleman," he commented.
10:49:14 AM
REPRESENTATIVE TUCK asked whether the proposed legislation will
affect the existing common carrier lines.
MR. BALASH advised that the new requirements in [AS 38.35.] 121
would not apply retroactively to state leases already issued.
However, the changes made in AS 42.06. Pipeline Act would apply,
particularly the changes in definitions in Sec. 8 and Sec. 9.
10:50:26 AM
REPRESENTATIVE TUCK asked whether the changes in rights of way
will eliminate lawsuits. He further asked how the legislation
will affect the open season and allow for competition.
10:50:57 AM
MR. BALASH said the main purpose is to create the regulatory
environment that allows commercial parties to enter the kind of
arrangements necessary for a privately based project. This must
be done in a manner that preserves a high degree of access for
third parties. The state has an interest in undeveloped land
and resources, and wants to ensure that resources are developed.
If access is available through the transportation systems, the
state can encourage more activity.
10:52:14 AM
REPRESENTATIVE TUCK asked whether this would eliminate a
monopoly or create more of a monopoly. He expressed his
understanding that under a common carrier provision anyone with
a supply of gas can potentially ship; however, disputes arise
when the pipeline transportation company refuses to allow the
shipper access. The proposed changes to the right-of-way that
eliminates common carrier provisions would make it so whatever
was negotiated in advance takes precedence. Representative Tuck
surmised this would create more of a monopoly.
10:53:04 AM
MR. BALASH said there are certain types of business activities
in the state that are monopolies, and that is why they are
regulated by the RCA. Natural gas pipelines are one of those
businesses; in fact, the right-of-way leasing act directs that
there will be common carrier service for pipelines that cross
state rights-of-way. There is debate as to whether this is a
successful model for the encouragement of third parties to
develop oil and gas resources. However, the proposed changes
will move away from the common carrier, and require that a
pipeline owner hold open seasons and offer capacity on a
nondiscriminatory basis. It is expected that this will
encourage third parties to go find and develop additional
supplies of gas for transportation in the existing pipelines.
10:55:18 AM
REPRESENTATIVE TUCK asked how the RCA's authority is going to be
affected with the changes in the common carrier provision.
10:56:10 AM
MR. BALASH said there is nothing in the proposed legislation
that fundamentally alters the RCA's authority. The pipeline act
provides for firm transportation service and the state right-of-
way leasing act does not. The RCA would still have authority to
regulate the tariffs and contracts between the shippers and
pipeline companies, and the legislation does not diminish its
ability to regulate natural gas pipelines.
10:57:20 AM
CO-CHAIR MILLETT asked for the reasoning behind the use of
rolled-in rates as opposed to incremental rates. She also
requested a definition of commercially reasonable terms, and
asked who would determine the market demand of commercially
reasonable terms.
10:57:45 AM
MR. BALASH explained that when a oil or gas pipeline is put in
service it is used to transport valuable commodity to market;
access to the pipeline is essential to those who are exploring
for oil or gas. Common carrier service allows a shipper to come
into the pipeline; however, if there is no more room, the
existing shippers are prorated "down." If the state regulation
moves away from the common carrier regime to a contractual
regime, then all the shippers have firm transportation service
that cannot be prorated down. Therefore, a new party cannot get
into the pipeline, unless the pipeline expands by compression or
looping. After expansion, if rates are rolled-in, all of the
shippers pay the same; however, rolling-in may result in higher
rates for the original shippers, thus there is a cap of 115
percent on how high the rates can increase.
11:02:58 AM
MR. BALASH then turned to the subject of distance sensitive
rates. During FERC's hearings on the Alaska natural gas
pipeline, both the executive branch and the legislative branch
agreed that gas coming from Prudhoe Bay, and taken out in
Fairbanks, should not pay same rate as gas delivered to Chicago.
The same general principal applies to an in-state pipeline; for
instance, gas put in the line at Nenana should only pay for the
mileage from that point to market. This method will encourage
exploration at all points along the pipeline route. Looking at
the situation from the consumer side, gas removed along the
route should not have to pay transportation costs for the
distance of delivery to Anchorage.
11:05:52 AM
CO-CHAIR MILLETT remarked:
If someone discovers gas, and they need expansion on
the pipe ... it's going to be looping, and they commit
their gas to Fairbanks, but the looping causes rolled-
in rates to increase all the way to the end of the
pipe for the other shippers. How are you going to
regulate that instance where a new shipper is coming
on board, but only using 400 miles of the pipe, and
everybody else is being charged for that expansion all
the way to the 800 mile end? The distance sensitive
rate for that shipper is just the rolled-in rates to
400 miles.
11:06:47 AM
MR. BALASH directed attention to Sec. 4, pages 6-7, of the bill
and read:
"Commercially reasonable terms" means that revenue
from transportation contracts covers the cost of the
expansion.
MR. BALASH continued to explain that regulation will depend on
"what has to be added where, along the pipe." A distance
sensitive tariff defines zones for delivery that add up to a
single charge. The RCA would identify which costs apply to
which delivery zone.
11:07:54 AM
CO-CHAIR MILLETT asked who would determine the commercially
reasonable term.
MR. BALASH said the commercially reasonable term is defined in
the statute and used by the RCA if it is called upon to enforce
the terms of the lease covenants. In further response to Co-
Chair Millett, Mr. Balash said the RCA looks at the "cost
causer" and they become the "cost payer." In a pipeline
setting, if everyone is putting in gas at the top of the pipe
and bringing it out at the bottom, then everyone pays the same
cost. However, if there are segmented delivery points in and
out of the pipe, the RCA will have to look at costs and how to
allocate costs throughout.
11:09:39 AM
CO-CHAIR MILLETT remarked:
In your description, the costs, the group that is
costing the increase is paying the increase, but in
rolled-in rates, everybody pays the cost for someone
new entering the pipe....
MR. BALASH agreed that everybody is paying, but everybody is
benefitting from the increased compression as the increased
compression makes the pipeline more efficient, therefore, the
overall toll goes down.
CO-CHAIR MILLETT said, "But that's only in compression. That's
not in looping."
MR. BALASH said, "That is usually the case, it depends." Under
the common carrier regulation of today, the original shippers
would be at risk of being prorated when new shippers come in.
[With the proposed legislation] the original shippers are
gaining certainty that their capacity will not be prorated, and
they are also gaining the certainty that if new shippers come in
and costs increase, their costs will not go higher than 115
percent.
11:11:45 AM
REPRESENTATIVE TUCK observed that the benefit of the proposed
legislation is that the suppliers are no longer forced to take a
prorated percentage; they are guaranteed that when new shippers
come on line, they will not be reduced in capacity. However,
they potentially will have to cover additional costs when new
shippers come in, but not over 115 percent.
11:12:37 AM
MR. BALASH concurred. He then turned to Sec. 4, page 6, of the
bill and noted that this section includes definitions of the
terms "commercially reasonable terms" and "reasonable
engineering increment." Section 5 begins the changes to the
pipeline act; for example, AS 42.06.240(f) is amended to read:
(f) Except if right-of-way lease covenants required by
AS 38.35.120-38.35.121 provide otherwise, in
MR. BALASH explained that this change specifies that if
something in the covenants creates a conflict, the covenants in
38.35.121 govern. Section 6, page 9, allows the RCA to issue a
conditional certificate similar to the conditional right-of-way
lease issued by the Department of Natural Resources.
11:15:57 AM
CO-CHAIR MILLETT asked whether the RCA currently issues these
certificates.
MR. BALASH said a certificate is required from the RCA to
construct a pipeline. In further response to Co-Chair Millett,
he acknowledged that two conditional certificates could be
issued on one project.
11:16:24 AM
MR. BALASH explained Sec. 7 of the bill allows the RCA to
enforce the terms of [AS 38.35.121] in the course of its
regulatory activities on an annual basis.
11:17:16 AM
MR. BALASH noted that Sec. 8 includes a definition of "firm
transportation service," and Sec. 9 adds a new paragraph stating
common carrier offers both firm transportation service and
interruptible transportation service.
11:17:55 AM
REPRESENTATIVE JOHANSEN asked for a further description of the
"give and take" on distance sensitive rates.
11:19:27 AM
MR. BALASH explained that the users of pipeline capacity pay for
what they need to use. He gave an example of the additional
cost of a segment of pipe going to a community some distance
from the pipeline route, and who should pay the extra
transportation cost.
11:21:05 AM
REPRESENTATIVE JOHANSEN surmised there is no difference whether
one is removing gas or putting it in.
MR. BALASH agreed, in terms of the rationale for distance
sensitive rates on a pipeline of this type.
11:21:32 AM
REPRESENTATIVE PETERSEN referred to Sec. 8. He asked under what
circumstances the pipeline's overall capacity could be
diminished.
11:22:18 AM
MR. BALASH gave the example of a 800 mile pipeline with two of
four compressor stations inoperable. In this case, the pipeline
cannot move as much gas, thus capacity is diminished.
11:22:50 AM
CO-CHAIR MILLETT asked whether the in-state pipeline jeopardized
the AGIA project or if there was enough gas on the North Slope
for both projects.
11:23:33 AM
MR. BALASH expressed the administration's long-term view that
there is a potential for large volumes of natural gas from the
North Slope. At this time, and in the near-term, it would be a
challenge to deliver 7.5 billion cubic feet per day of gas.
Whether an in-state line would cause a problem for the large
diameter pipeline is based on the size of the large pipe and the
volume that will be shipped. On the volume of the bullet line,
he opined 400 million to 500 million cubic feet per day is
required to make the bullet line economic.
11:25:35 AM
CO-CHAIR MILLETT recalled the AGIA license limits the volume of
the bullet line.
MR. BALASH reminded the committee that the 500 million cubic
feet per day limit in AGIA is an assurance that the state will
not support a competing project. This means the state will not
grant a favorable tax, favorable royalty terms, or provide a
cash grant to a competing project. If an in-state project moves
ahead without any state support or concessions, the project
could be larger in volume, and not affect the state's project
assurance clause in the AGIA license.
CO-CHAIR MILLETT remarked:
So, as long we don't "incentify", we don't make any
special exceptions, we don't change the step tax
structure specifically for the bullet line, we can
have a bullet line larger than half a bcf.
MR. BALASH concurred.
11:27:42 AM
REPRESENTATIVE TUCK asked whether 2.5 billion [cf/d] was the
"point of demarcation."
11:28:00 AM
MR. BALASH clarified 2.5 billion was an arbitrary number.
11:28:31 AM
REPRESENTATIVE PETERSEN asked whether an incentive for the
competing project may include bonding capacity.
MR. BALASH assured the committee the AGIA statute is very
specific in identifying tax, royalty treatment or modifications,
and/or a grant of cash. A legal case will be raised if the
legislature and the administration are faced with the question
of bonding capacity.
11:30:07 AM
CO-CHAIR MILLETT asked whether Point Thomson was included in his
estimate of known gas reserves on the North Slope.
MR. BALASH indicated yes.
11:30:27 AM
CO-CHAIR MILLETT announced HB 164 was held over.
HB 163-ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
CO-CHAIR MILLETT announced that the final order of business
would be HB 163.
11:30:54 AM
MR. BALASH reiterated HB 163 is one of the three components of
the administration's plan to initiate an in-state natural gas
pipeline project. He recalled a 2002 ballot initiative created
the Alaska Natural Gas Development Authority (ANGDA) and the
original language of the initiative directed ANGDA to pursue a
project from Prudhoe Bay to Valdez with a spur line to
Southcentral. In 2004, the legislature expanded ANGDA's mission
to include a pipeline to Cook Inlet. Mr. Balash noted that
today the energy needs of Alaskans requires further expansion of
ANGDA's purpose as a useful tool to facilitate pre-development
activities.
11:33:23 AM
MR. BALASH, in response to Representative Johansen, restated the
initiative was enacted in 2002, and amended by the legislature
in 2004.
11:34:23 AM
REPRESENTATIVE JOHANSEN observed this was a citizen initiative
and the bill is a proposal by the governor to amend the citizen
initiative. He asked whether the amendment is necessary because
there is new information, or a changing environment affecting
the statute.
MR. BALASH opined that was part of the consideration.
Additionally, however, ANGDA has been operating beyond its
statutory mission, albeit with the legislature's knowledge and
funding, and the bill allows the agency to become a vehicle for
getting gas and moving it anywhere in the state.
11:37:15 AM
REPRESENTATIVE JOHANSEN said it was a valid point for the
legislature and the governor to readdress the statute and make
adjustments.
11:37:55 AM
REPRESENTATIVE PETERSEN asked whether HB 163 would allow a
company to build a short pipeline that connected to the existing
pipeline system.
MR. BALASH said Sec. 1 would allow ANGDA to look beyond the
North Slope for a supply of gas. In further response to
Representative Petersen, he indicated that a pipeline of any
length would be allowed.
11:39:12 AM
CO-CHAIR MILLETT recalled ANGDA was directed to complete a gas
pipeline by 2007. She asked for an overview of ANGDA's
accomplishments; how much money the state has appropriated to
ANDGA; and what its work product has been.
11:40:03 AM
MR. BALASH related that after the initiative was passed in 2002,
the Murkowski Administration appointed a board of directors for
ANGDA. A modest appropriation funded the agency to do the work
required under the original initiative, which was to investigate
the feasibility and economic viability of a pipeline project
from Prudhoe Bay to Prince William Sound with a spur line to
Southcentral. The authority prepared a report to Alaskans in
2004; also during that year the legislature reviewed statutory
changes and expanded the authority's scope. Also in 2004,
applications began to be submitted under the Stranded Gas
Development Act (SGDA), and it became clear that the
administration's priority was a large diameter pipeline. In
fact, ANDGA began to focus on developing the spur line service
from the big line to Southcentral. The authority also looked at
opportunities for petrochemical development; other uses of
natural gas; and propane distribution along the rivers of rural
Alaska. During 2005-2006 ANGDA secured a conditional right-of-
way lease from the Department of Natural Resources (DNR) for the
spur line project along the Glenn Highway. Early in the days of
the Palin Administration, ANGDA was directed back to the
original project; thus in 2007 major funding was used to develop
an AGIA application. In 2008, that application was rejected for
noncompliance.
11:45:26 AM
CO-CHAIR MILLETT asked whether ANGDA submitted an application to
build a pipeline.
MR. BALASH explained ANGDA's application was to build a spur
line along the Glenn Highway connecting to an LNG applicant, or
to continue up the Richardson Highway to Delta Junction to
connect with one of the large pipeline projects.
CO-CHAIR MILLETT asked, "So, ANGDA would own and build a
pipeline, was that the idea?"
MR. BALASH expressed his belief that ANGDA's plan was to do the
pre-development work necessary to turn the project over to a
private developer/owner/operator. After the issuance of the
AGIA license to TransCanada, the administration received an
estimate of the funding needed for ANGDA to continue work until
the open season in 2010. He then pointed out that at the end of
the legislative session of 2008, the legislature passed a
resolution in support of in-state gas; however, the governor's
request for $10 million to study routes for an in-state gas
pipeline was denied and $4 million was appropriated to ANGDA.
11:48:53 AM
MR. BALASH, referring back to Co-Chair Millett's question, said
the authority has been appropriated about $10 million in total.
He assured the committee ANGDA is ready to begin its next stage
of work in pursuit of the spur line project; in fact, the
administration has done its best to keep in sight the statutory
mission, as well as the purpose behind specific appropriations
made by the legislature.
11:50:03 AM
REPRESENTATIVE TUCK asked about the Alaska Gasline Port
Authority (AGPA).
11:50:31 AM
MR. BALASH said, "ANDGA and AGPA are two very different
organizations with very different track records."
REPRESENTATIVE JOHANSEN asked who sponsored the ANGDA
initiative.
MR. BALASH said one sponsor was Scott Hayworth who is now a
member of the board of directors.
11:51:30 AM
HAROLD HEINZE, CEO, Alaska Natural Gas Development Authority
(ANGDA), Office of the Commissioner, Department of Revenue
(DOR), informed the committee the ballot statement of support
for ANGDA was signed by Mike Macy (ph), Tyrone Neill (ph), and
Scott Hayworth. Mr. Heinze continued to explain that the ANGDA
initiative passed in the 2002 election by a 2:1 margin. He
added that the initiative was born of frustration during the
Knowles Administration. In the summer of 2003, the ANGDA board
of directors was appointed and official work began in September
2003. The first task undertaken by ANGDA was to look at an LNG
project; after eighteen months of study ANGDA concluded the
project was economic, competitive, and feasible, but beyond the
means of ANGDA. Also, at that time, SGDA deflected interest
away from an LNG project. The authority focused on development
of the spur line; obtained a conditional right-of-way for
Glennallen to Palmer that is worth several million dollars; and
submitted an application under the AGIA process. The AGIA
application was focused on ANGDA's part of a partnership that
was dependent on a private sector partner. Mr. Heinze clarified
that ANGDA is not interested in owning and building a pipeline,
but is interested in "making one happen." Other events that
have influenced ANGDA's interest include the recent rise in
energy prices and the propane project on the North Slope. He
emphasized that ANGDA continues to advance the spur line through
the regulatory approval process and has almost established a
"ready to build status" for any private sector party coming in.
Mr. Heinze opined House Bill 163 is necessary for clarity so
that ANGDA can qualify for major financing.
11:57:39 AM
CO-CHAIR MILLETT recalled the initiative tasked ANGDA with 12
goals, and the final goal was to have a gas line in full
production by 2007. She asked how much closer [the state is] to
getting an in-state gas line.
MR. HEINZE acknowledged that Sec. 5, Item 11, of the initiative
petition set out a series of plans, and the goal of having the
Alaska gas line in production by 2007 was missed. The intent of
Sec. 5 was to provide a first year task; however, the focus of
the governor and the legislature was on the pipeline through
Canada and ANGPA was working on an LNG project. He discussed
his experience in the industry back to 1969. Mr. Heinze opined
that "things are in good shape" because of the two groups
working on the big pipeline through Canada and their FERC
applications. The primary focus for ANGDA now is to assure that
the in-state side is well represented in the FERC process. The
in-state project must be prepared to interface with the big
project between January and July 2010, and be further prepared
to participate as provided for under the federal legislation
that will guide FERC in its proceedings on the Alaska gas
pipeline.
CO-CHAIR MILLETT asked if ANGDA asked for an appropriation in
the operating budget.
MR. HEINZE said ANGDA requested $315,000, and he described his
office staff. Regarding further appropriations, he said ANGDA
has received approximately $10 million in appropriations and
with operating expenses has received about $12 million. In
return for that, the state has several projects where the
private sector can move forward. He opined the private sector
lacks the ability to see with certainty whether the big pipeline
will succeed or not; once that question is answered, there are a
number of pipeline companies that will be interested in the
Alaska line.
12:04:11 PM
CO-CHAIR MILLETT asked about the level of interest from
producers on the rights-of-way ANGDA has obtained.
MR. HEINZE said several large Lower 48 pipeline companies are
interested in the spur line project; in fact, their interest is
due to the work ANGDA has done. Furthermore, he assured the
committee that it is clear to interest parties that public
monies expended by ANGDA must be reimbursed.
12:05:20 PM
CO-CHAIR MILLETT announced HB 163 was held over.
12:05:40 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at [12:05]
p.m.
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