Legislature(1999 - 2000)
03/23/2000 01:55 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 23, 2000
1:55 P.M.
TAPE HFC 00 - 80, Side 1.
TAPE HFC 00 - 80, Side 2.
TAPE HFC 00 - 81, Side 1.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:55 P.M.
PRESENT
Co-Chair Therriault Representative Foster
Co-Chair Mulder Representative Grussendorf
Representative G. Davis Representative Moses
Representative Bunde Representative Phillips
Representative J. Davies Representative Williams
Representative G. Davis
Representative Austerman was not present for the meeting.
ALSO PRESENT
Representative Eric Croft; Representative Ramona Barnes;
Anne Carpeneti, Assistant Attorney General, Criminal
Division, Department of Law; Carol Carroll, Director,
Division of Administrative Services, Department of Natural
Resources; John Shively, Commissioner, Department of Natural
Resources; Charles Boddy, Vice President, Ucibelli Coal
Mine; Lorali Meier, Staff, Representative Beverly Masek; Jim
Eason, Representative of ANS LNG Sponsor Group, Anchorage.
TESTIFIED VIA TELECONFERENCE
Roger Marks, Department of Revenue, Anchorage; Nan Thompson,
Alaska Regulatory Commission, Anchorage; Jim Stratton,
Director, Division of Parks and Outdoor Recreation,
Department of Natural Resources; Jerry McCutcheon,
Anchorage; Ken Boyd, Director, Division of Oil and Gas,
Department of Natural Resources; Nan Thompson, Anchorage.
SUMMARY
HB 265 An Act extending the termination date of the
Alaska regional economic assistance program; and
providing for an effective date.
HB 265 was POSTPONED for hearing at a latter date.
HB 290 An Act relating to stranded gas pipeline carriers
and to the intrastate regulation by the Regulatory
Commission of Alaska of pipelines and pipeline
facilities of stranded gas pipeline carriers.
HB 290 was HEARD and HELD in Committee for further
consideration.
HB 344 An Act authorizing a land exchange between the
Department of Natural Resources and Alaska Hard
Rock, Inc.; and providing for an effective date.
CS HB 344 (FIN) was reported out of Committee with
a "do pass" recommendation and with a zero fiscal
note by the Department of Natural Resources.
HB 350 An Act repealing the statutory bars to the State
of Alaska's prosecution of a criminal act that
resulted in a conviction or acquittal by the
United States, another state, or territory.
HB 350 was HEARD and HELD in Committee for further
consideration.
HB 361 An Act relating to charges for state services;
requiring that fees levied by resource agencies
for designated regulatory services be based on the
actual and reasonable direct cost of providing the
services, except in the case of certain negotiated
or fixed fees; relating to negotiated or fixed
fees of resource agencies; relating to invoices
for designated regulatory services; establishing a
petition process regarding fees charged by
resource agencies for regulatory services; and
providing for an effective date.
CS HB 361 (FIN) was reported out of Committee on
March 22, 2000. The fiscal notes were passed from
Committee on March 23, 2000 with new notes by the
Department of Natural Resources, the Department of
Law, the Office of the Governor, and three notes
by the Department of Environmental Conservation.
HJR 2 Proposing amendments to the Constitution of the
State of Alaska relating to a biennial state
budget, to the appropriation limit, and to
appropriations from the budget reserve fund.
CS HJR 2 (JUD ) was reported out of Committee with
individual recommendations and with a fiscal note
by the Office of the Lt. Governor dated 1/26/00.
HOUSE BILL NO. 361
An Act relating to charges for state services;
requiring that fees levied by resource agencies for
designated regulatory services be based on the actual
and reasonable direct cost of providing the services,
except in the case of certain negotiated or fixed fees;
relating to negotiated or fixed fees of resource
agencies; relating to invoices for designated
regulatory services; establishing a petition process
regarding fees charged by resource agencies for
regulatory services; and providing for an effective
date.
Co-Chair Therriault spoke to the new fiscal notes contained
in the bill packet. He stated that the fiscal notes
amounted to more than justified and that there would
continue to be work done with the agencies.
Co-Chair Mulder MOVED to adopt the fiscal notes to accompany
the CS HB 361 (FIN). There being NO OBJECTION, it was so
order.
CS HB 361 (FIN) moved from Committee on March 22, 2000; it
accompanied with the new fiscal notes by the (5) the Office
of the Governor, (3) Department of Environmental
Conservation and (1) by the Department of Law, and a zero
note by Department of Natural Resources.
HOUSE BILL NO. 350
An Act repealing the statutory bars to the State of
Alaska's prosecution of a criminal act that resulted in
a conviction or acquittal by the United States, another
state, or territory.
ANNE CARPENETI, ASSISTANT ATTORNEY GENERAL, CRIMINAL
DIVISION, DEPARTMENT OF LAW, explained that the bill would
allow the State of Alaska to prosecute and punish an
offender for a crime that has been prosecuted by the federal
government or by another state. She noted that since early
Statehood, the State of Alaska has had statutory
prohibitions on the prosecuting and punishing a person,
including a corporation, for an act that another
jurisdiction has already prosecuted. The policy is not
based on constitutional law; the State and federal
constitutional prohibitions against being placed twice in
jeopardy for the same act do not prohibit separate
jurisdictions from separately prosecuting, and punishing the
same act under different bodies of law.
Ms. Carpeneti added that recent events have suggested a
reconsideration of the policy. The federal prosecution of a
cruise ship company for illegally discharging water polluted
with oil and hazardous waste into our waters demonstrate
that the harm suffered by the State should have been
addressed in a separate prosecution. HB 350 will allow
Alaska to prosecute an offender if a similar situation
should arise. She noted that two cases have arisen in the
last two years. The first was with the Royal Caribbean
Cruise Line. The federal government prosecuted it under
environmental criminal laws with a fine of $1800 dollars.
In that case, Alaska did have substantial interest in
litigating rights as a State and was unable to do so. The
second example is the Raging Bond case. Ms. Carpeneti
noted that woman defrauded people out of millions of dollars
and was criminally prosecuted by the federal government for
the scheme itself. Later the State prosecuted her for
securities violations. The State is appealing that case.
HB 350 would repeal the statutes that prohibit the State
from prosecuting cases such as these.
Co-Chair Mulder asked if the State has the ability to
prosecute under civil law. Ms. Carpeneti acknowledged that
they did. She noted that there is a civil settlement.
In response to suggestions by Co-Chair Mulder, Ms. Carpeneti
disagreed noting that the civil resolution of a case is very
different from a criminal resolution. A civil resolution
is done mainly to pay back the losses rather than to punish
people who violate our criminal laws in the State. The
settlement was for $3.5 million dollars which is not nearly
the amount that could have been pursued in a criminal fine.
She added that the State could pursue fines in many other
categories with the Royal Caribbean Line through the
proposed legislation.
Co-Chair Mulder referenced the fiscal note from the Public
Defenders Agency. He asked why Alaska has had a long-
standing bar against excessive prosecution. Ms. Carpeneti
replied that it is unknown why that statute was adopted at
statehood. It is assumed that Alaska's statutes were
borrowed from other western states. Prosecution in those
states is on county by county basis, whereas, Alaska has a
statewide prosecution system. It is more important to
clarify that one county can not prosecute a criminal act.
The purpose of the bill is to address where Alaska's
interest has not been vindicated.
Co-Chair Mulder suggested that removing the bar would not
provide assurance that the proposed change would not allow
for a multitude of prosecuting at both the federal and State
level. Ms. Carpeneti pointed out that there is a Letter of
Intent forwarded from the House Judiciary Committee, which
clarifies that concern.
Co-Chair Mulder argued that he did not see a compelling
reason why a case would need to be prosecuted at both the
State and federal level. Ms. Carpeneti replied that in some
cases, there isn't a "compelling" reason and the State
should not prosecute. The State works with the federal
government on drug cases all the time. There is never a
particular reason in those cases. In certain situations as
the two listed above, there is an interest which the State
should have been able to pursue.
Co-Chair Mulder disagreed. He questions the reason for
sticking the State law on those victims for expanded
latitude. Ms. Carpeneti replied that civil penalties are
part of the cost of "doing business" for most corporations.
Criminal penalties are more serious and are a punishment for
behavior that is a crime. The ability to prosecute somebody
criminally is an important legal ability.
Co-Chair Mulder asked if it was such a compelling interest
to pursue the Royal Caribbean Cruise Line, why did the State
not work with the federal government. Ms. Carpeneti stated
that we could have done that, but that does not mean that
they would not have prosecuted on their own.
Representative J. Davies asked if there was a general bar
limitation on double jeopardy between the State and the
federal government. He noted that the legislation would
provide the State the same latitude which the federal
government currently has. Ms. Carpeneti noted that the
double jeopardy provision does prohibit the same
governmental authority from prosecuting the same act again.
It would prohibit the municipality from prosecuting the same
act as they derive their source of power from the same State
power latitude that is available to the federal government.
The federal government does not have a provision like that
proposed in HB 350; however, the feds do have guideline
provisions.
Vice Chair Bunde asked if there was a retroactive portion to
the legislation. Ms. Carpeneti stated there was not.
Representative Bunde asked if there was an interconnection
with the finding impacts on activities outside Alaska. Ms.
Carpeneti explained that there was a $18 million dollar
criminal fine that would remain separate. Representative
Bunde asked if the legislation would be considered a "money
maker" for the State. Ms. Carpeneti replied that would be
going too far; she noted that the State has interest in
"justice" which moves beyond "money".
Representative J. Davies referenced the Judiciary Letter of
Intent. He recommended incorporating the intent language
into statute. Ms. Carpeneti advised that inclusion of that
language in statute would make the Department responsible
for litigating that issue in every case. She recommended
language which would specify that the federal government
require the Attorney General or that designee approval,
subsequent prosecutions which the Legislature could
consider.
Co-Chair Therriault asked about the federal perimeters
regarding whether lawful action is covered. Ms. Carpeneti
replied that is an attorney general policy currently in
federal law.
Co-Chair Therriault commented that there had been criticism
that the Department of Law was remiss in addressing the two
above-mentioned cases. He questioned why the State had not
undertaken the case first, and then the State could have
prosecuted and the federal government could have made their
decision after. He questioned the "motivator" for the
legislation. Ms. Carpeneti offered to provide more
information to the Committee regarding that concern.
Representative J. Davies questioned if the underlining
premise was correct in that, if the State "gets into the
case first", then the statutes would not take affect. Ms.
Carpeneti commented that the statutes state that the State
can not prosecute if a person has been convicted or
acquitted of charges. Representative J. Davies asked the
time cut off. Ms. Carpeneti replied that she did not know.
Co-Chair Mulder pointed out that these cases had compelling
State interest. He asked why the State had not prosecuted
these cases first before the federal government. Ms.
Carpeneti reiterated that she would provide that
information.
Representative Grussendorf added that the idea of having
criminal laws regarding these concerns, indicates to those
parties guilty that they can not do something for fear that
they will be criminally charged. He maintained that the
civil charge is only the cost of "doing business".
Representative Grussendorf emphasized that it would be in
the State's best interest to impose the criminal
repercussions.
HB 350 was HELD in Committee for further consideration.
HOUSE BILL NO. 344
An Act authorizing a land exchange between the
Department of Natural Resources and Alaska Hard Rock,
Inc.; and providing for an effective date.
Co-Chair Mulder MOVED to adopt the work draft, HB 344, 1-
GH2071\D, Kurtz, 3/22/00, as the version of the bill before
the Committee. There being NO OBJECTION, it was adopted.
CAROL CARROLL, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF NATURAL RESOURCES, noted that Mr.
Stratton, Director, Division of Parks with the Department
was on line and she requested that he present the bill to
the Committee.
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
explained that the bill would provide legislative approval
of a land exchange agreement between the Department of
Natural Resources and Alaska Hard Rock, Inc. The purpose of
the land exchange would be for the State to acquire private
land located within and adjacent to Independence Mine State
Historical Park near Hatcher Pass. The land to be acquired
would be developed to enhance the interpretive and
recreational uses of the park. The land the State is
exchanging is also located in the Hatcher pass area and is
presently under permit to Alaska Hard Rock, Inc. They are
interested in receiving title to the land.
Commissioner Shively continued, State law requires
legislative approval of land exchanges involving lands of
unequal appraised value. In the proposed exchange, the
State will receive land appraised at $87 thousand dollars
while conveying land appraised at $66,500 thousand dollars.
Alaska Hard Rock, Inc. is agreeable to this unequal
exchange; they would be receiving a federal tax credit for
the difference.
He pointed out that by adding the land to the Independence
Mine State Historical Park, particularly the underground
mine tunnel, would add to the tourism potential of the park.
JIM STRATTON, (TESTIFIED VIA TELECONFERENCE), DIRECTOR,
DIVISION OF PARKS AND OUTDOOR RECREATION, DEPARTMENT OF
NATURAL RESOURCES, added that the Division and Alaska Hard
Rock, Inc., had worked cooperatively together to determine
an appraisal. He commented that the land they are receiving
is service land where they currently have mining structures,
storage buildings and other facilities, which they are using
for underground operations.
CHARLIE BODDY, VICE PRESIDENT OF GOVERNMENTAL RELATIONS,
UCIBELLI COAL MINE, noted that after working with the Alaska
Railroad over the past few years, it was obvious that they
would need legislative approval to extend the lease which
they had prior to approval of the transfer act of the
Railroad with the federal government. The time of the 55-
year lease was decreasing in which it became necessary to
secure a 30-year mortgage. All the lending institutions
wanted an additional 10 years past the term of the loan.
The Alaska Railroad does have the statutory authority to
issue a lease for longer than 35 years, however, the caveat
is that they would then have the right to terminate that
lease at any point if that land is needed by the Alaska
Railroad. Mr. Boddy noted that if the lease were not
extended, a 20-year mortgage would be too expensive. He
reminded members that it is just less than a township with
about 500 plus acres developed which started in 1977. The
town of Healy and Ucibelli has relocated out into the
subdivision. Mr. Boddy stressed that they would like to
preserve that community.
Representative J. Davies asked if consideration had been
given to swapping some land with the Alaska Railroad. Mr.
Boddy responded that the Denali Borough has not finished all
their municipal selections to date.
Co-Chair Therriault noted that the town of Ucibelli and
Healy use to be on the tracks. The town was developed so
that they could move the operations. He noted that
transferring to the federal government language has caused a
problem for a new loan.
Mr. Boddy pointed out that the master lease was taken from
the Railroad. Ucibelli was looking for options to move
employees off the mine site and the federal government
wanted to help with the safety administration. He
reiterated that it is important to have the ability to
secure each mine site. Mr. Boddy advised that at that time,
there was a shortage of additional space for people to
relocate. The other businesses, which were operating in
that area, were able to plot the subdivision. The master
lease allows to get only the recovering costs incurred for
the cost of development of the subdivision.
Co-Chair Mulder noted that Ucibelli was leasing land from
the Railroad and were exchange leasing the land to these
people that have homes there. He asked what the families
pay for lease costs for that land. Mr. Boddy replied that
in 1977, there was an original rental fee in the amount of
$1.2 thousand dollars per acre development fee. Those funds
were used for the road and recovering a trunk line from the
Valley. The rental for years thereafter was $28.87 per acre
per year. That cost was spread over the entire subdivision
as if every acre was leased. In 1990 to present, there is a
$2 thousand dollar development fee for a lot and the rental
amount has increased to $100 dollars per acre per year.
Co-Chair Mulder interjected that these people have received
"a good deal" on the land. He questioned the long-term
intention. Mr. Boddy responded that Ucibelli was in a
position to do the development in 1977. However, he pointed
out they run a coal mine and "being a landlord" is a
function that Ucibelli would like to get rid of.
Co-Chair Therriault advised that the Alaska Railroad is
interested in facilitating the swap. Mr. Boddy agreed,
noting that the legislation presupposes that they will be
taking that area back. The Denali Park is the one currently
being utilized.
Co-Chair Mulder questioned if it was the desire of the
Railroad to dispose of the property. Mr. Boddy did not
know.
(TAPE CHANGE, HFC 00 - 80, Side 2).
Co-Chair Mulder pointed out that the Railroad could take
advantage of all the improvements made to the land.
Representative J. Davies pointed out that the way in which
the legislation is structured, the Railroad would not be
able to terminate the lease. It would always be a lease and
not an ownership situation. Representative J. Davies agreed
that a private land arrangement would be the most beneficial
to everyone.
Ms. Carroll advised that the fiscal note would not change
with the committee substitute.
Co-Chair Mulder MOVED to report CS HB 344 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 344 (FIN) was reported out of Committee with a "do
pass" recommendation and with a zero fiscal note by the
Department of Natural Resources.
HOUSE BILL NO. 290
An Act relating to stranded gas pipeline carriers and
to the intrastate regulation by the Regulatory
Commission of Alaska of pipelines and pipeline
facilities of stranded gas pipeline carriers.
LORALI MEIER, STAFF, REPRESENTATIVE BEVERLY MASEK, stated
that before a North Slope natural gas pipeline project can
proceed, certain amendments to existing State statutes would
be required. These changes are intended to:
? 1) Apply to all potential North Slope natural gas
pipeline projects,
? 2) Clarify respective State and federal jurisdictions
in regulating such projects,
? 3) Be complementary to a non-discriminatory federal
process which will apply to any export volumes of North
Slope natural gas,
? 4) Provide for local (in State) gas transportation and
sales; and
? 5) Provide needed exemption from public utility
designation for a North Slope natural gas pipeline
project.
Ms. Meier noted that HB 290 would amend the Pipeline Act (AS
42.06) to define a North Slope natural gas pipeline and
would clarify that the Regulatory Commission of Alaska's
(RCA) authority in regulating a North Slope natural gas
pipeline, extends only to the intrastate transportation of
gas through such a system, so as to define a fair,
predictable and timely process to identify and dedicate
sufficient initial capacity in a North Slope natural gas
pipeline. Also it would establish the criteria for needed
pipeline system expansions over the life of a North Slope
natural gas pipeline system to accommodate increased demand
for in State gas supplies.
Ms. Meier pointed out that HB 290 would amend the Public
Utilities Act (AS 42.05) to clarify that North Slope natural
gas pipeline systems are exempt from the requirement of
operating as a public utility. The bill would also amend
the right-of-way Leasing Act (AS 38.35) to limit the
requirement of common carriage for North Slope natural gas
pipeline systems to the transportation of intrastate gas
volumes.
Ms. Meier stated that HB 290 would define the types of
intrastate transportation services that would be available
in a North Slope natural gas pipeline system. The
legislation will provide that the North Slope natural gas
pipeline carrier may charge separate rates for those
services. Additionally, they would charge a reservation fee
for reserving capacity in a North Slope natural gas pipeline
system.
Ms. Meier concluded that collectively, these changes are
intended to provide greater certainty and predictability in
the regulation of North Slope natural gas pipeline systems.
The increased certainty would enhance the ability of gas
export project sponsors to market Alaska's North Slope
natural gas reserves, to compete more effectively with
alternative export projects and to attract the large
investments required to construct and operate the pipeline
and related facilities.
In response to Co-Chair Mulder, Ms. Meier explained that the
proposed legislation was the "second phase" of the Stranded
Gas Act. She added that the Stranded Gas Act established a
regulatory framework for a natural gas pipeline system. It
applies to any project as well but is not project specific.
Representative J. Davies asked the significance of why the
pipeline would not be operated as a private carrier but
instead it would be operated as a common carrier. Ms. Meier
replied that any project sponsor would not want to
distribute natural gas to a residential area. They would
want to leave that up to the Fairbanks Natural Gas Industry.
The local distribution companies will act as public
utilities.
JIM EASON, REPRESENTATIVE, ANS LNG SPONSOR GROUP, ANCHORAGE,
spoke to the group's membership. He reiterated that the
intent of the bill is straightforward and was written to
provide clarity of federal and State regulations for a
pipeline. Additionally, it is intended that the regulatory
commission would regulate the intrastate portion, the part
in the State available for use. The Department of Energy
would regulate the export portion.
Mr. Eason clarified that the legislation provides for a
system to establish how much gas would need to be moved to
insure that such a project would be creating a system large
enough to be able to compete in projected demand for instate
use.
Mr. Eason emphasized that the most important purpose of the
legislation is to provide certainty to the market and to
insure that the volume of gas needed to contract will be
available for a long period of time. He added that it is
important to insure that the need to guarantee the gas in
State is accommodated, which could be accomplished through
the oversight of the regulatory commission.
KEN BOYD, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISON
OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, offered to
answer questions of the Committee. He noted that the bill
is outside the Division of Oil and Gas and involves the RCA
and the State Pipeline Coordinators Office.
Representative J. Davies asked about the volume limit. Mr.
Eason responded that the regulatory commission would approve
the construction of a line larger than any previously
constructed before the commission. He believed that the
cost could be assessed fairly. The intent of the language
would insure that the pipeline sponsor would not be required
to build a line.
Representative J. Davies questioned the language
"substantiated by written commitments and contract"
previously mentioned. He asked if that would include more
than the sponsor group. Ms. Eason did not believe that it
would specifically include the sponsor and its contracts, as
it would be for export purposes. The intent is that the
regulatory commission could monitor the in state use. It is
important that there a system be in place, which could
expand the capacity as in State demand grows. It is
critical to have some idea of the expected demand in the
State.
ROGER MARKS, (TESTIFIED VIA TELECONFERENCE), DEPARTMENT OF
REVENUE, ANCHORAGE, noted that he had been coordinating
review of the bill for the Administration. The
Administration endorses the bill except for one problem on
the tariff structure. He noted that Nan Thompson was on
line to address that concern.
JERRY MCCUTCHEON, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE,
stated that there is no such thing as stranded gas as
associated with an oil reservoir. He noted that there were
only two that he knew about which could qualify for stranded
gas. He did not believe that the proposal would be
beneficial to the residents of the State. He emphasized
that the gas line would cost half of the actual recoverable
oil.
NAN THOMPSON, (TESTIFIED VIA TELECONFERENCE), REGULATORY
COMMISSION OF ALASKA, ANCHORAGE, stated that the interest of
the Regulatory Commission would be to protect the interest
of potential instate users. She noted that from her
perspective, the bill is "almost" there, with only one more
issue remaining. That issue is the tariffing methodology.
The issue has been raised but has not been discussed
thoroughly enough for everyone to understand the
implications of it. She asked to assist in that endeavor.
Ms. Thompson noted that Co-Chair Therriault had asked for a
list of items that would be excluded from a utility pipeline
tariff. There are Alaska Public Utility Commission (APUC)
decisions excluding the following types of expenses from
utility rates, but no comparable decision excluding them
from pipeline rates:
? Public relations costs
? Lobbying expenses
? Charitable contributions
? Association dues
? Extraordinary management compensation
? Research and development costs
? Acquisition adjustments
? Pensions and employee benefits
Ms. Thompson noted that only imagination and conscience
limit the types of expenses, which a pipeline owner could
ask be included in the tariff. The sponsor group correctly
noted that RCA would have the authority to exclude these
expenses when they are presented for review. However, RCA
could not exclude them with the assurance that the pipeline
owner would not appeal. An appeal could mean time delays
and uncertainty in the business environment and additional
legal expenses for RCA and carriers. The carriers would be
entitled to argue that those legal expenses should be
included in their rates.
Ms. Thompson noted that the difference between the utility
and pipeline tariff methodology, and how it affects RCA's
decision-making process, is well-ar1iculated in a 1992
pipeline decision which states that:
"The methodology the Commission uses to determine the
value of the property of public utilities is set by
statute, A.S. 42.05.441 (b) reads as follows: `In
determining the value for rate-making purposes of
public utility property used and useful in rendering
service to the public, the commission shall be guided
by the acquisition cost, or, if lower, the original
cost of the property to the person first devoting it to
public service, less accrued depreciation. plus
materials and supplies and a reasonable allowance for
cash working capital when required.' There is no
similar provision under AS 42.06. Thus, the Commission
is free to determine the appropriate way to value
pipeline property for the purposes of ratemaking."
Ms. Thompson noted that the Alaska Public Utilities
Commission (APUC) went on, in that forty-page opinion, to
discuss the options and arguments of the parties and make a
decision. RCA can determine what is just and reasonable,
but the lack of case law in this area to guide the RCA and
the pipeline owners creates room for arguments. She noted
that arguments mean delay and litigation expenses and a less
predictable environment for instate shippers. The RCA would
generally follow its utility tariff decisions, except where
the Federal Energy Regulatory Commission (FERC), the federal
agency with pipeline jurisdiction, has a different rule.
Thus, a prospective in-state shipper would have to reference
federal case law to predict the likely outcome of a pipeline
tariff case.
Ms. Thompson advised that the APUC has set rates for only
two oil pipelines in this State. The Kenai Pipeline case
cited above was one, and Cook Inlet Pipeline was the other.
Both cases were extensively litigated. The APUC has set
tariffs for all other oil pipelines based on settlements
between the affected parties.
Ms. Thompson concluded that APUC has set rates for only one
gas pipeline under the pipeline statute. The affected
parties agreed to those rates as part of a comprehensive
settlement package that has no predetermined value. All
other gas pipeline tariffs have been set using a utility
tariff methodology.
Co-Chair Therriault asked for clarification of what was
involved in the various tariff methodologies. Ms. Thompson
stated that in the utility statute #381, lists all the
exclusions and the exceptions to it. She indicated that the
other differences have been derived from decision-making
laws. She admitted that this is difficult to articulate and
offered to provide it in writing to the members. Ms.
Thompson pointed out that if there were a clear rule, it
would be easier to predict the outcome. She offered to
provide a comprehensive list.
Co-Chair Therriault noted that the interest is that the
tariff gets applied against the value of the resource or
passed on to the users. Ms. Thompson commented that
ultimately the impact of this would be, that if the
utilities have to pay less, those lower costs would be
passed on to their consumers.
Mr. Eason responded to comments made by the previous
speakers. He observed that the focus of testimony had been
the issue of lobbying and regulatory costs. Mr. Eason
believed, based on prior conversations, that case law exists
dealing with their handling of utility tariff issues. He
added that concerns of costs were directed where the
regulatory commissioner was dealing with "settled" tariffs.
Mr. Eason stated that the rate making involved has been a
different process than he would have envisioned. Mr. Eason
noted that other pipeline disputes have been resolved
through settlement to determine what would and would not be
allowed as a tariff.
Mr. Eason advised that Ang Lng had accurately reflected
their understanding of the Commissioner's authority. He did
not foresee the likelihood of disputes coming at that point.
The decisions of permitting and certificating, and the terms
would be addressed by the Commission. Mr. Eason added that
Ang Lng, consequently, does not see the same urgency to
establish the ratemaking methodology at this time.
Mr. Eason stated that they are opposed to enclosing a
utility rate making methodology. He noted that under either
statute, the chairman has broad authority to allow or
disallow changes. He emphasized that the proposed
legislation does not allow anything to happen which the
regulatory commissioner can not portray. HB 290 would
foreclose any discussion of rates on return and methodology.
Mr. Eason commented that the Commissioner pointed out that
there are existing pipelines in the State that are regulated
under the utilities act. He noted that all of those
pipelines requested that inclusion. None of them were
required to do that. He reiterated that any project
developed to move North Slope natural gas, would be the only
pipeline required to file tariffs under the proposed system.
Co-Chair Therriault asked Ms. Thompson to respond to the
"just and reasonable" reference which would preclude many
unjustified expenses.
Ms. Thompson agreed with Mr. Eason that all of the current
pipelines using the utility tariff making methodology have
requested that treatment. She thought that Mr. Eason was
suggesting the opposite of her argument which is that the
pipeline owners do stand to have less of a recovery. Under
either tariffing methodology, the commission is responsible
for guaranteeing that the rates are just and reasonable.
They would get a fair rate of return under either
methodology. It is more likely, because of the uncertainty
in the legal field that they stand a chance to make even a
little more under a pipeline methodology. She agreed that
was something that RCA could control and that the public
would have the opportunity to comment.
Ms. Thompson noted that her concern was with the potential
in state users who are trying to decide even before they see
the tariff, if they want to participate in the project. The
way that the bill is written, when the pipeline is being
designed, the utilities would have to make a decision on how
much gas they would want to use in the next several years to
insure an adequate capacity to accommodate that. Ms.
Thompson stated that it would be easier to make that
business decision if there were some certainty in what the
shipping rates were going to be. Ms. Thompson continued,
the in-state shipper will have a better idea of what they
are going to pay in order to make a better business decision
regarding whether or not they will want to participate.
Ms. Thompson noted that Mr. Eason's initial comments were
regarding the settlement. Most of the pipeline tariffs in
the State have been settled between the parties. She
believed that a settlement would not be likely to occur in
the case proposed by Mr. Eason. The concern is that when
there are a number of potential users, that group would be
too big to make it likely to reach a settlement. The impact
is that there is not much case law or precedence in this
State regarding what is an acceptable settlement. She
stated that it would be easier to make the decision if the
shipping rates were known.
Representative G. Davis asked if the proposed amendment
would address Ms. Thompson's concern. Ms. Thompson replied
that the change required to change a utility methodology so
to promote the in-state use of gas should be left to the in-
State users.
Mr. Eason advised that Chairman Thompson is fully committed
to the public's interest. He believed that her view was
that the public interest is advanced by the utility rate
making methodology.
(TAPE CHANGE HFC OO - 81, SIDE 1)
Mr. Eason noted that they both believe that the majority of
the pipeline tariffs settlements are established by
settlement. The concern voiced by Ms. Thompson is that
there will not be a settlement. Mr. Eason, however,
disagreed. He advised that a small group is undertaking
this task and that they would want to "sit down and settle".
He observed that Mr. Eason spoke to promoting the use of in-
State gas. He noted that there have been lengthy
discussions with in-State users of gas. In the process of
designing the language to determine the threshold, those
users suggested that fears expressed by Ms. Thompson were
premature and inappropriate.
Co-Chair Therriault stated that he wants the gas-line to be
developed and that he wants the best price possible for his
constituents without jeopardizing the pipeline. He noted
that he sympathized with what the price to the consumer
would be. Mr. Eason emphasized that the difficulty is that
no one knows the answers. Millions of dollars are being
spent with uncertainty of whether a market exists and
whether or not the cost can be cut significantly to maintain
the safety and integrity of the pipeline. Within that mix
lays are all the concerns regarding the future prices of gas
and he recognized that everyone has valid concerns.
Mr. Eason noted that the issue is that they can not define
the sensitivities on the fiscal side. Those discussions
will happen in public settings when the facts and numbers
are on the table. He asked if it made sense to have a
pipeline act and a utilities act if enough methodology is
not available to use it. The Legislature decided to have
both and to have provisions for either party to present
their arguments. Mr. Eason reiterated that this would be the
first time that a project would be required to file a rate-
making methodology. He acknowledged that it would be a
large policy step; the final implications are not yet known.
This project would be regulated under the pipeline act and
tariffed under the other. The situation will be and will
establish a one-time deal.
Co-Chair Therriault stated that what is allowed under "just
and reasonable" would provide more certainty for the in-
State user and for Ang Lng. Ms. Eason disagreed. He stated
that the commission has the authority to specify what would
be disallowed, and could include items that have already
been established under existing case law. He noted that Ms.
Thompson's concern is that there is and has been litigation
over whether or not they have the authority to exclude
certain items after they have already been settled. Mr.
Eason believed that was a very different scenario than what
this case presents.
Ms. Thompson countered that the statute states that both the
utility and the pipeline tariffing statutes that the
Commission will approve just and reasonable rates. The
utility has a couple of specific exclusions. There is case
law, which defines what is reasonable and just, and the
treatment in certain kinds of expenses which are allowable.
Ms. Thompson stated that when a party has an economic
interest, there is not clear precedent case law, then the
lawyers will have a difficult time proceeding with that
case. It could end up in an appeal which would then have to
go to the Superior Court. She noted that she was troubled
that in those situations, the prospective in-State users
would not know what they would be required to pay.
Co-Chair Therriault requested that Ms. Thompson provide a
list of those items which are not allowed, under the utility
method. He advised that HB 290 would be HELD in Committee.
He advised that there was an amendment, 1-LS1269\K.4,
Chenoweth, 3/24/00, in member's packets that addressed the
use of the resource. [Copy on File].
Mr. Eason stated that he had concern with the title change
recommended by the amendment.
Mr. Boyd added that he shared Mr. Eason's concern with the
title change in the amendment. He believed that the
amendment would place local need above the projected revenue
need of the State as a whole.
HB 290 was HELD in Committee for further consideration.
HOUSE JOINT RESOLUTION NO. 2
Proposing amendments to the Constitution of the State
of Alaska relating to a biennial state budget, to the
appropriation limit, and to appropriations from the
budget reserve fund.
There was discussion amongst Committee members regarding the
fiscal note. Representative Phillips clarified that with
$2.5 million dollar savings the second year, $1.6 million
dollars would be Legislature and rest would be agency.
Representative J. Davies voiced concern that there is not a
clear idea of how the legislation would be implemented. He
asked if the resolution would allow the Legislature to deal
with formula driven programs each year. He recommended that
a working group be established to address concerns.
Representative Grussendorf thought that implementation of
the proposed legislation in the State of Alaska would be
more difficult. He commented that currently, what occurs is
an annual audit within each department. The proposed
changes would be shifting the authority elsewhere, placing
more dependency on the Executive Branch. He recommended
that consideration of the resolution could be considered if
the revenue flow became stabilized.
Representative G. Davis asked what the effective date would
be. Representative Phillips replied that it would become
effective 2001.
Representative Williams MOVED to report CS HJR 2 (JUD) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HJR 2 (JUD) was reported out of Committee with individual
recommendations and with a fiscal note by the Office of the
Lt. Governor dated 1/26/00.
ADJOURNMENT
The meeting adjourned at 4:00 P.M.
H.F.C. 19 3/23/00
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