Legislature(2003 - 2004)
05/13/2003 04:06 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
May 13, 2003
4:06 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 277
"An Act relating to the powers of the Regulatory Commission of
Alaska in regard to intrastate pipeline transportation services
and pipeline facilities, to the rate of interest for funds to be
paid by pipeline shippers or carriers at the end of a suspension
of tariff filing, and to the prospective application of
increased standards on regulated pipeline utilities; allowing
the commission to accept rates set in conformity with a
settlement agreement between the state and one or more pipeline
carriers and to enforce the terms of a settlement agreement in
regard to intrastate rates; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 277
SHORT TITLE:PIPELINE UTILITIES REGULATION
SPONSOR(S): REPRESENTATIVE(S)DAHLSTROM
Jrn-Date Jrn-Page Action
04/17/03 1026 (H) READ THE FIRST TIME -
REFERRALS
04/17/03 1026 (H) O&G, L&C
04/22/03 (H) O&G AT 3:15 PM CAPITOL 124
04/22/03 (H) -- Meeting Canceled --
04/23/03 1081 (H) COSPONSOR(S): KOHRING
04/24/03 1108 (H) RES REFERRAL ADDED AFTER O&G
04/24/03 (H) O&G AT 3:15 PM CAPITOL 124
04/24/03 (H) Heard & Held
04/24/03 (H) MINUTE(O&G)
04/29/03 (H) O&G AT 3:15 PM CAPITOL 124
04/29/03 (H) Scheduled But Not Heard
05/01/03 (H) O&G AT 3:15 PM CAPITOL 124
05/01/03 (H) Moved CSHB 277(O&G) Out of
Committee
05/01/03 (H) MINUTE(O&G)
05/02/03 (H) L&C AT 3:15 PM CAPITOL 17
05/02/03 (H) Scheduled But Not Heard
05/02/03 (H) RES AT 1:00 PM CAPITOL 124
05/02/03 (H) <Pending Referral> -- Meeting
Canceled --
05/05/03 1316 (H) O&G RPT CS(O&G) NT 1DP 6NR
05/05/03 1316 (H) DP: KOHRING; NR: HOLM,
ROKEBERG, FATE,
05/05/03 1316 (H) KERTTULA, CRAWFORD, MCGUIRE
05/05/03 1317 (H) FNS: FORTHCOMING
05/06/03 1372 (H) FN1: ZERO(REV) RECEIVED
05/06/03 1372 (H) FN2: ZERO(DNR) RECEIVED
05/07/03 (H) RES AT 8:00 AM CAPITOL 124
05/07/03 (H) Bill Postponed 1:30 PM --
05/07/03 (H) RES AT 1:30 PM CAPITOL 124
05/07/03 (H) Heard & Held
-- Recessed to Friday 8 AM --
05/07/03 (H) MINUTE(RES)
05/09/03 (H) L&C AT 3:15 PM CAPITOL 17
05/09/03 (H) Scheduled But Not Heard
05/09/03 (H) RES AT 8:00 AM CAPITOL 124
05/09/03 (H) Heard & Held
-- Recessed to 1:00 pm --
MINUTE(RES)
05/12/03 (H) L&C AT 3:15 PM CAPITOL 17
05/12/03 (H) Scheduled But Not Heard
05/12/03 (H) RES AT 1:00 PM CAPITOL 124
05/12/03 (H) Moved CSHB 277(RES) Out of
Committee
MINUTE(RES)
05/13/03 1589 (H) RES RPT CS(RES) NT 3DP 1DNP
2NR
05/13/03 1589 (H) DP: LYNN, HEINZE, FATE;
05/13/03 1589 (H) DNP: GUTTENBERG; NR: MASEK,
WOLF
05/13/03 1590 (H) FN1: ZERO(REV)
05/13/03 1590 (H) FN2: ZERO(DNR)
05/13/03 1590 (H) REFERRED TO LABOR & COMMERCE
05/13/03 1617 (H) CORRECTED CS(RES) NT RECEIVED
05/13/03 (H) L&C AT 3:30 PM CAPITOL 17
WITNESS REGISTER
DAVE HARBOUR, Chairman
Regulatory Commission of Alaska (RCA)
Department of Community and Economic Development (DCED)
Anchorage, Alaska
POSITION STATEMENT: Related concerns about areas in which
CSHB 277(RES) provides obscurity rather than clarity; answered
questions.
JANICE GREGG LEVY, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division (Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Testified in support of CSHB 277(RES) and
provided a sectional analysis; answered questions.
RANDAL G. BUCKENDORF, Counsel
Anchorage Legal Department
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified in support of CSHB 277(RES).
MARK HANLEY, Public Affairs Manager, Alaska
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Pointed out that the committee was
addressing an erroneous version of CSHB 277(RES).
ACTION NARRATIVE
TAPE 03-52, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 4:06 p.m. Representatives
Anderson, Lynn, Dahlstrom, and Gatto were present at the call to
order; Representative Crawford arrived immediately thereafter.
Representatives Rokeberg and Guttenberg arrived as the meeting
was in progress.
HB 277-PIPELINE UTILITIES REGULATION
CHAIR ANDERSON announced that the committee would consider HOUSE
BILL NO. 277, "An Act relating to the powers of the Regulatory
Commission of Alaska in regard to intrastate pipeline
transportation services and pipeline facilities, to the rate of
interest for funds to be paid by pipeline shippers or carriers
at the end of a suspension of tariff filing, and to the
prospective application of increased standards on regulated
pipeline utilities; allowing the commission to accept rates set
in conformity with a settlement agreement between the state and
one or more pipeline carriers and to enforce the terms of a
settlement agreement in regard to intrastate rates; and
providing for an effective date."
[Before the committee was CSHB 277(RES). The version in
packets, labeled 23-LS0980\I, was in error. The corrected
version, labeled 23-LS0980\Q, was provided to the committee
after this meeting.]
Number 0069
REPRESENTATIVE DAHLSTROM, sponsor, told members HB 277 clarifies
that jurisdiction of the Regulatory Commission of Alaska (RCA)
over rates is limited to intrastate tariffs. It eliminates the
RCA's jurisdiction over state right-of-way leases and clarifies
its authority over dismantlement, removal, and restoration
(DR&R). It adds a new section that ensures the RCA's support of
rate methodologies agreed to in settlement agreements with the
state. And it changes the applicable interest rate charged
under RCA orders so that it conforms to the interest rate
applied in similar matters. Representative Dahlstrom concluded
by adding, "My intent for filing this legislation is that there
are issues that need to be worked out. And I think we're doing
a good job of bringing all the parties to the table ... and
working towards a solution." She suggested hearing from
witnesses.
CHAIR ANDERSON called upon Dave Harbour.
Number 0211
DAVE HARBOUR, Chairman, Regulatory Commission of Alaska (RCA),
Department of Community and Economic Development (DCED),
specified that his comments would address CSHB 277(RES) and that
the version he had - since he was testifying via teleconference
- was faxed to him prior to the House Resources Standing
Committee meeting the previous day. He also noted that he'd
provided formal written testimony.
CHAIR ANDERSON offered his belief that version 23-LS0980\I was
what had moved out of the House Resources Standing Committee.
REPRESENTATIVE DAHLSTROM requested that Jan Levy testify first
and present a sectional analysis.
MR. HARBOUR concurred, but pointed out that the RCA finds
serious fault with the position of [Ms. Levy] as well as the
advocates of the bill, in spite of the best intentions of its
author.
Number 0470
JANICE GREGG LEVY, Assistant Attorney General; Oil, Gas & Mining
Section; Civil Division (Juneau); Department of Law, noted that
she would address legal questions about the bill and offered the
administration's support for CSHB 277(RES). She said:
In our view, the bill has a number of attributes that
will clarify areas where there have been questions
raised regarding the jurisdiction of the RCA. ...
Section 1 would amend the authority of the
commissioner of natural resources ... by adding a
section that makes clear that the commissioner is the
lead in investigating the performance of obligations
under the terms of the leases issued by that
department. We believe this is already the law and
that DNR [Department of Natural Resources] is the
obvious agency to be enforcing the leases that it
enters into, with the assistance of the Department of
Law. But this would make it explicit.
And the reason this was brought up is because, as you
may know, a little later, in Section 2 of the bill,
we're deleting language under which it currently says
that the commission, the RCA, may investigate the
performance of obligations under and compliance with
terms of leases issued by the state. So the
administration believes that the proper agency to
enforce its state leases - these are real estate
leases, mind you - is the Department of Natural
Resources and not the RCA, and that the RCA's
functions are more tailored to overseeing the rates
and the transportation service provided by the
pipeline carriers.
Number 0626
REPRESENTATIVE GUTTENBERG remarked that it seems this changes
the authority and relationship among the commissioner, the RCA,
and the regulated community. He asked Ms. Levy to expound on
that and added, "The RCA's rulings - which I don't have in front
of me, and I think some of this ... is meant to address that -
said one thing, and now ... are you giving the commissioner
authority over things that the RCA has claimed authority over
before?"
MS. LEVY replied:
The administration doesn't believe that we're changing
that scheme, but I will recognize absolutely that the
... commissioners of the RCA may have a different
view. And where this is coming up, specifically, is
with this phrase, "performance of obligations under
and compliance with terms of leases issued by the
state".
The ... leases issued by the state, of course, are ...
leases for the use of the state land. That's not so
much the area where we believe the legislature in the
past has sought regulation. ... The way that we would
enforce our leases would not be by going to the RCA,
but by going to the court if we need to. If we think
that a company ... that we allow to use our land is
breaching the contract, we would ... initially work
with them and then, if need be, go to court to have
that enforced. We wouldn't typically go to the RCA.
And also, if you would note, this has only to do with
terms of leases issued by the state.
And there's been quite a bit of discussion that
somehow this bill would leave a regulatory void, and
that there would be no oversight of the leases issued
by private landowners, Native landowners, federal
landowners. And, of course, we think ... the owners
of the land are the proper ones to enforce their
rights - if they lease their lands to parties, they
should enforce those rights - and that the commission
has the expertise and wisdom to regulate the rates
charged for transporting the resource, but not what
the terms are of the use of the land on which the
pipeline is built.
Number 0779
REPRESENTATIVE GUTTENBERG offered his understanding that this
relates to the whole DR&R issue. He asked, "Isn't the DR&R ...
under the leases and that whole concept?"
MS. LEVY replied:
That's correct. ... I'm not aware of any time in the
past that the APUC [Alaska Public Utilities Commission
- precursor to the RCA] or the Regulatory Commission
of Alaska has, in fact, overseen DR&R. This is a
relatively new phenomenon coming up now. And the
reason I think you're hearing about it is, in a recent
order - and not Order 151 that you've heard about
that's been appealed to superior court, but in a
recent order - the regulatory agency said that it had
authority over the performance of DR&R. And this
came as a surprise to most parties, I think. ...
The administration is fully in support of the RCA
overseeing the collection of money from shippers to
perform those obligations. We want them to perform
that function. So when a carrier says, "We want to
... make additional charges to the shippers so that we
can collect money in advance to perform this at the
end of the life of the pipeline," we think that's
absolutely appropriate. If there are refunds to be
made at the end of the life of the pipeline, we think
that is absolutely appropriate for the RCA to
determine how much the cost has been.
But the evidence of whether or not those contractual
obligations have been met should be determined by the
landowner that required it in the first place. This
... appears to be a new area of oversight in
regulation that we've never seen evidenced or
exercised by this agency or its predecessor agencies.
Number 0907
MS. LEVY turned attention to Section 3 and said:
This is the same issue that we think is an appropriate
clarification, that with respect to ... the
performance of DR&R - that means the physically taking
down the pipe or cleaning it or whatever is required -
... will be overseen by those parties that have a
contractual obligation to either do it or ... receive
the benefit of that contract. But if you can see, at
the end, "except amounts included in the pipeline
carrier's intrastate rates", the RCA ought to have
continued jurisdiction over whether or not those
amounts should be continued to be collected - is it
too much, is it too little.
Number 0962
MS. LEVY addressed Section 4 as follows:
The primary change here that we see is down ... around
page 4, lines 27, 28, 29, that the commission, in
setting its intrastate rates, may not base those rates
on the revenues that have been collected from
interstate shippers. ... We have ... one pipe and two
types of service on the pipe. If the oil is destined
for an interstate market, ... the shippers pay an
interstate tariff that is filed with the Federal
Energy Regulatory Commission [FERC].
And on the intrastate side, it's filed with the RCA.
Even though it's flowing through the same pipe, it
enters at Pump Station [No.] 1 and in some cases is
used within Alaska, [and in some cases] ... Outside.
But the FERC, who regulates interstate tariffs,
doesn't make its decision ... as to what can be
collected based on what's been collected on the
intrastate side. And it shouldn't operate the other
way around either. ...
It has been brought to my attention that some folks
think that because the TAPS [Trans-Alaska Pipeline
System] settlement agreement ... does allow intrastate
rates to be considered on the interstate side to set
tariffs, that that means the FERC considers intrastate
revenues. But that's not the case, ... because the
FERC doesn't set rates on TAPS, since it's approved
the settlement agreement. So the FERC does not
consider intrastate revenues. We think this is what
the law is today, and it's meant to be a
clarification. And it's meant to be consistent with
the FERC methodology as well.
Number 1070
MS. LEVY turned attention to Section 5, noting that it would
delete the words ["discontinue use of all or any portion of a
pipeline or abandon" and replace it with "reduce capacity"].
She explained:
My understanding of the purpose of this is to make
clear that the owners of a pipeline in this state
should be free to make changes in hardware, equipment
- the capital expenditures - without going to the RCA
for permission so long as they aren't reducing ... the
transportation service. If they are, if they're
permanently reducing capacity, or if they're having a
reduction in transportation services, as you'll see
highlighted here, then they need to go ... and seek
permission. So we think that's appropriate, and not
removing regulation that is necessary. The
administration is in support of regulation where it's
useful and helpful to the public, but not where it ...
may impede efficient use of the resource.
Number 1132
MS. LEVY addressed Section 6 as follows:
Section 6 is an interest rate provision. Under the
current statute, if there are overcollections that are
ordered at some time to be refunded, they're paid at
the statutory rate set out in [AS] 45.45.010, which is
10.5 percent. This change would be five percentage
points above the 12th Federal Reserve District
discount rate. This is a modification, if you will,
of the interest rate that the legislature set for
other judgments and ... payments of money in Title 9,
but it's adjusted to five percentages points above,
instead of three percentage points above.
Under this bill, this provision changing the interest
rate would not apply to any pending cases. It would
only apply to a case filed after the effective date of
this bill. So any pending case, if a refund is
ordered, would continue to be paid at the 10.5
percent.
Number 1192
MS. LEVY turned attention to Section 7 and said:
Section 7, again, is something we believe is the
existing law, but it's a clarification. It arose as a
result of litigation - things that have been argued -
but I believe I've understood Chair Harbour to say
that the commission believes this section is
consistent with their understanding of existing law.
So, any orders that are issued by the commission would
not affect any rates that have been charged before the
protest that initiated the dispute. This would be
consistent with ... their business as well.
MS. LEVY discussed Section 8 as follows:
The change you'll see on page 7, again, [is] a
codification of existing practice that the attorney
general is the one who brings a pipeline tariff
challenge if we are challenging one of the carrier's
rates. We do that now before the FERC, and it's clear
in statute that the attorney general is the entity to
do that. It's less clear with respect to the RCA, but
it's been the practice ever since we've had pipelines
in the state, and this would clarify that, and that
the attorney general would consult with the affected
agencies.
Number 1264
MS. LEVY turned attention to [Section 9] and said:
It's a large applicability section. Most of the bill,
Sections 1-4 and 7 and 8, would apply to matters
pending before the RCA. And I know that this has been
a concern to a number of people who have stated that
they don't want to change the rules midstream. And in
looking through the bill, we looked for ... where
there would be a change here. A lot of this is just
codifying what we think is existing practice or
policy. And for those, if you were to say this bill
did not apply to them, well, then, you'd actually have
the reverse effect: you would be leaving in place
language that perhaps is not the policy intended by
this legislation.
So we think this is the right way to go, with the
exception of interest, which could affect an existing
case, and so it seems right, in the administration's
view, to just apply that going forward. Additionally,
there's been discussion that ... this has been an
effort to change an order that was issued by the RCA,
Order 151, and my understanding is that's not the
case. [Subsection] (c) ... on the last page would
clarify that. ... The changes here do not apply to
anything on appeal to the courts. And it would not
apply to something on appeal to the courts that was
subsequently remanded. So it is not an attempt to
undo what the RCA did in Order 151.
Number 1364
MS. LEVY, in reply to Representative Guttenberg as to why
Section 9 doesn't affect Order 151, said:
That order is on appeal now; ... it's before the
superior court. And then we thought, well, it could
get remanded for some reason, or some part of it could
be remanded. And ... so we went to say it won't apply
to a matter that's in an order that's on appeal and is
remanded. So that's our way of getting around it.
Now, there are other issues that still exist before
the RCA now that, except for the interest rate, the
rest of this bill would apply to them. And the
administration thinks it's both fair and good policy.
You don't want a situation where you have one pipeline
subject to one set of rules for complaints that were
filed a year ago, and that same pipeline subject to
another set of rules by somebody who files a complaint
next year. ... DR&R either is a function of the RCA or
it isn't. It can't exist two different ways on the
same pipeline for two different litigants.
REPRESENTATIVE GUTTENBERG asked whether any part of Order 151
hasn't been appealed or remanded.
MS. LEVY replied:
Nothing has been remanded. All of Order 151 has been
appealed. There are pieces of the docket from which
[Order] 151 arose that remain before the commission,
but those have not been resolved. They are not on
appeal. There's not an order yet with respect to
those, and they involve DR&R. So they involve an
issue that's being addressed within the body of the
bill.
REPRESENTATIVE GUTTENBERG requested confirmation that this bill
would address all of those issues that aren't appealed,
basically the DR&R.
MS. LEVY said that is correct.
Number 1478
REPRESENTATIVE GATTO asked whether it is a departure from past
practice to have [decisions about] the land being separate from
rates and services.
MS. LEVY replied, "No. That's always been the case." As to
what triggered this, she said there was litigation brought
before the RCA and explained:
It cited to this statutory authority to oversee state
leases as a basis for having jurisdiction over ...
both intrastate and interstate DR&R collections. And
I think that's what brought this to folks' attention.
But the leases have always been entered into by the
state. The state owns the land. If it issues a
right-of-way lease, it does so pursuant to the statute
and through a long string of requirements set by the
legislature.
And so this would be new to have the RCA overseeing or
interpreting the state's leases. And I'm not sure
what would happen if the RCA had a different view of
what our contractual requirements were than what the
state thought of its own contract. And so we're
concerned about that as a policy matter - who should
be interpreting ... the state's contracts.
Number 1558
REPRESENTATIVE GUTTENBERG referred to Section 4 and the concept
that the commission may not base intrastate rates on revenue
collected on interstate transportation. He asked, "Does this
mean that they can't use any of the information they know about
those rates, ... any part of their understanding of what
happens, whether its overpayment, underpayment, or just any part
of the rate structure ... on interstate, ... that they can't
gather information and understand what happens and even use that
in consideration?"
MS. LEVY answered no. She explained:
This language is a clarification of the previous
version of the bill, which used the words "the
commission may not consider" - I think is the way it
was written. And in the last committee there was
concern expressed about the use of that word, and I
think that's why the committee changed this so ...
they can consider it, they gather any information they
want, [and] they can look at anything.
But under this, the commission may not base the
intrastate rates on what's been collected on the
interstate side. ... You have to kind of view it in
your mind as though [there are] two pipes: there's an
interstate pipe and an intrastate pipe. And there's
one big cost in operating that regulated entity.
If the FERC ... does not allow the interstate side to
collect a sufficient amount - maybe they have 90
percent of the throughput and they only allow them to
collect 80 percent - in our view that doesn't mean
that the extra 10 percent should be picked up by the
intrastate shippers. ... That wouldn't be the right
approach.
The right approach is, if 10 percent of it is being
shipped on the intrastate side, they pay 10 percent of
the cost. If the FERC didn't allow them enough, the
carriers go back to the FERC and plead their case.
And the same would be true if they allowed them to
collect too much, from the RCA's view, on the FERC
side; that doesn't mean the shippers get to ship for
... free on the intrastate side. ... You go to the
agency that regulates that portion of the service.
And ... I think that's the only way to keep it clear.
But certainly, under this language, nobody's trying to
hide information. ... I have a lot of respect for the
RCA. They're entitled to any information they think
they may need to get a full picture of the operation
of the pipeline.
Number 1684
CHAIR ANDERSON noted that several members had heard the bill in
previous committees.
REPRESENTATIVE GUTTENBERG pointed out, however, that the latest
version moved out of the House Resources Standing Committee
without testimony or questioning, despite significant changes
such as that the commission may not "base" as compared with
"consider".
CHAIR ANDERSON said he hadn't realized that. He again called
upon Mr. Harbour, chair of the RCA, to testify.
Number 1744
MR. HARBOUR told members:
I guess I'll start by saying that we are sometimes
categorized as being on a side - and ... we're
actually the only entity advising you that has no
financial stake in the outcome of this debate. The
state itself is a party to various open dockets that
are related to the legislation that's been proposed,
and we respect the state's advocacy, for under the
agreements that it has with the TAPS owners, it's
obligated to defend the agreement.
We are not obligated to defend the agreement. By
statute and by terms of the pipeline Act that your
predecessors established, we are obligated to look out
after the public interest, as well as assure the
proper relationship of rates ... to all of the parties
involved. And that leads us to this particular bill.
Number 1789
MR. HARBOUR told members Section 1, rather than clarifying,
obscures almost everything except the interest-rate issue. For
example, paragraph (9), which discusses the role of the
commissioner of natural resources, only appears to clarify the
commissioner's role. He explained:
The ... commissioner of natural resources has a
responsibility over state lands and state leases - and
properly so - and for the proper execution of those
leases. And the assistant attorney general and we
agree on that point. What's obscured is what's
missing, that is, what entity then goes on to assure
that those operating the pipeline have collected
sufficient fees for the dismantlement of the project,
and properly apply those, and that those are available
and ..., further [adding] to this web of complexity,
that proper rates are charged the intrastate shippers.
Number 1869
MR. HARBOUR addressed Section 2, saying that apparently an
attempt to correct a fairly glaring error only added to the
obscurity in relation to later portions of the proposed
amendments. He explained:
After the words ... "carriers in the state", they took
out the section "but only to the extent applicable to
services", in essence pipeline services; so that would
have removed from your regulatory commission the
ability to look over any facilities, only services,
and it would have seriously diluted [it]. However,
the dilution is still in effect by virtue of the
obscurities that I'll lead you to as we go down
further. ... The bill before you reads now "shall
regulate pipelines and pipeline carriers in the
state", period, which is the way the law currently
reads. The last version or the last two versions had
that extra phrase put in that was removed in the
[House Resources Standing Committee] ... yesterday.
Number 1930
MR. HARBOUR referred to the elimination in Section 2, paragraph
(2), of the following: ", AND THE PERFORMANCE OF OBLIGATIONS
UNDER AND COMPLIANCE WITH THE TERMS OF LEASES ISSUED BY THE
STATE". He told members:
[That] goes back to the statement that I made on
Section 1 with respect to the responsibilities of the
commissioner of the Department of Natural Resources.
Certainly, he, more than any other, has the
jurisdiction and responsibility over terms of leases
and how those leases are observed, and how DR&R, for
example, under leases would be accomplished - the
physical dismantlement ... and so forth. However,
again, this specifically removes ... the commission
from the ability and the jurisdiction to be able to
look over the law to the larger rate and collection
issues, and even refund issues.
Number 1978
MR. HARBOUR referred to Section 2, subparagraph (8), on page 3,
line 31. He said:
Note that the word "abandonment" [which is being
deleted] ... seems like a small word. And the
assistant attorney general might want to speak to
that, but omitting "abandonment" as a responsibility
of the commission under this section ... puts huge
obscurity into the whole process, for if the
commission ... does not have abandonment within its
portfolio, then how may it - as it can now do on
behalf of the people of the state of Alaska - ...
certify ... that DR&R has been done, that is, to get
statements from the Department of Natural Resources
and the Bureau of Land Management and Native
landowners and private landowners and then, at the
request of a pipeline that wants to go out of
business, certify it's done what it's supposed to have
been ... done - the fees have been properly collected,
properly refunded in some cases, and then a
certificate for abandonment is given. So who will do
that if this bill passes? That's another obscurity.
Number 2065
MR. HARBOUR noted that the language proposed in Section 3 reads:
(c) Notwithstanding any other provision of this
chapter, the commission does not have jurisdiction
over a pipeline carrier with respect to the
dismantlement, removal, and restoration of any part of
a pipeline facility, or over any amount collected or
held by a pipeline carrier for performing
dismantlement, removal, and restoration except amounts
included in a pipeline carrier's intrastate rates.
MR. HARBOUR remarked:
These are current items ... for the commission, and
the specific intent is to (indisc.) of such items.
And then it goes on to say "except amounts collected
in a pipeline carrier's intrastate rates". And I have
to tell you, ... when I paint this little picture for
you, you'll clearly understand the obscurity I'm
trying to define for you. How can you set an
intrastate rate, ... one of whose components is DR&R,
without knowing the total picture? And this seeks to
make that obscure.
All of these items ... that I'm defining as obscure,
I'm also going to suggest to you represent items of
uncertainty and future litigation which will have cost
impact indeterminate on the regulatory commission, but
certainly represent uncertainty ... and significant
potential litigation because of the huge, huge stakes
involved.
Number 2131
MR. HARBOUR turned attention to Section 4 and said, "This is one
that's so confusing that I've had several lawyers within the
agency disagreeing on what the meaning that the author has in
mind is." He read from Section 4, which stated in part:
The requirements of this chapter pertaining to permits
and certificates of public convenience and necessity
do not apply to the construction of a pipeline
facility exclusively subject to federal jurisdiction
or to the interstate portion of the business of a
pipeline or pipeline carrier [EXCLUSIVELY] subject to
federal jurisdiction ....
MR. HARBOUR noted that certificates of public convenience and
necessity are something the RCA does on behalf of the people of
Alaska when there is a pipeline in the state. He said:
This removes that jurisdiction for interstate
pipelines and a pipeline ... proposed to be only
interstate, or for an interstate pipeline ... that is
subject to federal jurisdiction that has an intrastate
component, ... and that includes rates, tariffs,
charges, classifications, rules. We've concluded here
that this provides rich, rich opportunity for
employing lawyers ... for years, especially, then,
when you go down a little further.
MR. HARBOUR read from the next sentence of Section 4, which
stated:
However, the requirements of this chapter for permits
and certificates of public convenience and necessity
do apply to [ALL] the intrastate portion of the
business of a pipeline or pipeline carrier subject to
federal jurisdiction to the extent the pipeline or
pipeline carrier is engaged [WHENEVER IT ENGAGES] in
intrastate commerce, including rates, tariffs,
charges, classification, rules, regulations, terms,
and conditions pertaining solely to the intrastate
portion of the business.
MR. HARBOUR remarked, "This seems to give back, but it's
debatable if it gives back." He continued:
Then, the next sentence that [Ms. Levy] was referring
to, "The commission may not base" - we do interpret
basing differently than the assistant attorney general
does, and believe that that also will lead to
significant legal conflict. ... A couple of sentences
down, "However, nothing in this section limits the
power of the commission to consider ...."
OK, just above, we cannot "base" ... intrastate rates
on revenue collected in interstate transportation, but
... thank goodness that we can "consider" both
interstate and intrastate revenue. Again, that word
... is different than the word "rates" above, and it
was changed from the word "cost" a couple of days ago.
Number 2263
MR. HARBOUR asked that someone provide a clear meaning for
Section 4, suggesting it will provide a great deal of
difficulty. He explained:
The framers of the pipeline Act 30 years ago ... set
out to make sure that the State of Alaska's regulatory
jurisdiction reached out, covered any "no man's land,"
until it touched federal jurisdiction. And what is
done at the end of Section 4, at the very last
sentence, is to remove that fundamental underpinning
of the Alaska Pipeline Act ... by removing the words
"set out in this chapter except to the extent they are
preempted by federal law". [Then-Senator] Groh wanted
to make sure that the State of Alaska had control of
these facilities except to the extent preempted by
federal law. And that is very carefully and
surgically removed from the Act.
Number 2305
MR. HARBOUR referred to Section 5 and asked why "reduce
capacity" is being added and the following is being removed:
"DISCONTINUE USE OF ALL OR ANY PORTION OF A PIPELINE OR
ABANDON". He told members:
If you read the Alaska Pipeline Act tonight at home,
... it will take about 20 minutes and it will read
clearly, as the framers intended. And then if you
read these changes, you'll be scratching your heads,
as the professionals are. ... This section is very
deceptive. It looks as though it's saying that a
pipeline carrier may not abandon or permanently reduce
capacity, but you have to look carefully at the words
and how the lawyers will interpret those words in
future actions.
MR. HARBOUR said he respects all the regulated companies that
come before the RCA, but is obligated to give the legislature
straight advice and counsel as well, for legislators to accept
or not. As an example, he posed a situation in which a pipeline
has a certain amount of capacity that was partly made possible
through a certain number of either pump stations, in terms of an
oil pipeline, or compressor stations, in terms of a gas
pipeline. The life of the pipeline is more than halfway over,
throughput has peaked, and the owner believes it would be
cheaper to remove one or more compressor stations or pump
stations. The owner can argue that it hasn't permanently
reduced the capacity. However, when a new explorer obtains
reserves and then requests capacity, the answer will be no, that
the number of pump stations or compressor stations has been
reduced and there is [no room for the explorer's product].
TAPE 03-52, SIDE B
MR. HARBOUR said it is obviously in the interest of the State of
Alaska to [be able to hear issues relating to capacity], which
is why former legislators wrote the Act as they did. However,
[this bill] makes it arguable that such a potential shipper can
appeal to the commission for capacity. The commission currently
has the ability to hear a record and issue orders that provide
the capacity on a reasonable basis at reasonable rates. "If the
legislature mindfully wants to lose that capability by cutting
off the arm of the commission to perform that kind of decision
making, then that is one of the obscurities that the decision
presents to you today," he cautioned.
Number 2360
MR. HARBOUR addressed Section 6, calling attention to the last
part of it. He said:
The interest-rate matter is one that is in the
pipeline Act now. It is clearly defined. It's
defined otherwise for court judgments in other
portions of our statutes. If the legislature wishes
to clarify that particular number, then that's not
something that the commission could find fault with.
Number 2335
MR. HARBOUR turned attention to Section 7 and told members:
The author of this ... maybe had a very clear
understanding of the processes in the added section
and maybe ... had not a very good understanding of our
processes. But we have the ability to do temporary
rates and interim and refundable rates ... before the
commission. And in order to do what the author wants
this to do, after the word "affect", the word "final"
should be inserted so that it reads "affect final
rates", because we do not go back and do retroactive
ratemaking.
We do make rates interim and refundable or temporary,
based upon the case before us and the evidence
presented, or the lack of final resolution ... of the
case. ... And the parties know that at the end of the
decision process, those will be made final and ...
that either refunds or other collections will be made,
depending on the final order. So that correction
should be made if this thing goes any further.
MR. HARBOUR, in response to Representative Gatto, specified that
he was talking about the rates on line 13 previously and in the
last few minutes was talking about "final rates" on line 26 in
Section 7. In further response he said:
If the author wished to be accurate, the author should
add the word "final" after "affect" and before "rates"
so it reads "not affect final rates", because
otherwise it would apply to all rates, including
interim, refundable, temporary ratemaking that the
commission does.
CHAIR ANDERSON noted that Mr. Harbour must have a different
document, because on his own copy it was on page 6, line 28.
Number 2231
MR. HARBOUR turned attention to Section 8 and said:
I don't think the intent is problematic. I do think
that the legislature should consider the fact that, as
... in some current cases, the attorney general may be
representing the state as a party to issues before the
commission, ... in which case the legislature has
defined ex parte communications and the attorney
general should not be consulting under your current
statutes with this commission on pipeline tariff
matters and open dockets on which the attorney general
is representing a party.
Number 2201
MR. HARBOUR addressed Section 9 and retroactivity. He referred
to page 7, line 30, which says Sections 1-5 and 7-8 apply to
matters pending before the RCA on or after the effective date of
the Act. He also referred to testimony by the state and the
bill's advocates that there is no intent to be retroactive. He
estimated that if the bill passes in the near future, it will
apply to approximately 30 open dockets that are pending. He
added that these are "big issues that are the target of the
obscurity that I have described to you."
Number 2079
REPRESENTATIVE CRAWFORD asked why [Section 9 says] Sections 1-5
and 7-8 apply to matters pending before the RCA on or after the
effective date, whereas subsection (b) says Section 6 applies
only to matters filed before the RCA on or after the effective
date of this Act.
MR. HARBOUR suggested that Ms. Levy's reply would refer to the
interest-rate section, which he said is the least cloudy of all
the issues he'd presented.
MS. LEVY responded:
The applicability section [Section 9], ... I believe
that Chairman Harbour is reading the bill correctly.
I think this is what the previous committee intended
to pass out. If you take it, looking at line 3,
Section 6 is the interest section. So, for any
pending matter, the 30 cases or so that he has
referenced, if in fact as a result of the outcome of
those cases there is ... a refund ordered, the
interest rate will be the interest rate that applies
today, not the one that's being put into effect by
this bill.
The reason that the administration supports
[subsection] (a) to the effect that the rest of the
sections will apply to pending matters is - as I tried
to say before, and perhaps I didn't do it too clearly
- ... many of these charges are what we believe either
are in the law or ought to be in the law, and it's
appropriate and good policy for them to apply.
It's appropriate and good policy that DNR oversee its
own leases. We do not believe that anything in this
bill is going to impede the ability of the RCA to look
at rates collected for DR&R. We don't think that it's
their role, necessarily, to ensure that enough money
has been collected because, in our view, whether the
pipeline carriers collect enough money or not, they
have to do what's required by the contract. If they
fail to come to the commission and ask for that money,
they may not get it from the shippers. And, indeed,
that's what happened in Cook Inlet pipeline. The
first 13 years of its life, it operated without any
DR&R being collected. It is still going to have to
perform DR&R, even though it didn't -- I don't know
why it didn't, but it didn't ask for that to be
collected in its rates, and the APUC didn't come in
and tap them on the shoulder and say, "Excuse me, you
forgot to ask for a DR&R collection". But they still
have to do the job.
Number 1930
CHAIR ANDERSON asked Ms. Levy to respond to Mr. Harbour's
comment about the 30 open dockets that will be affected.
MS. LEVY replied:
Well, as I said, if you walk through the different
sections of the bill - ... if you're of the view that
each of these provisions is good policy, and the
administration is of that view - then we think it's
appropriate that they apply now. And if there aren't
really any rights being trampled on here, in the sense
that we think this points everyone to the right result
in any event - that, for example, there isn't anything
pending before the RCA ... that discusses whether or
not DNR has authority over its leases, really; that's
not an issue in someone's case - if you were to say
that this doesn't apply, it's not applicable, ... I
don't know how you interpret that if you pass the law
today.
It has to either apply now and in the future ... or
not. It doesn't really apply to the case. The ones
that do, ... in all fairness, ... it's the DR&R. ...
That goes to the heart of the issue: ... should there
be authority right now over DR&R. And we believe that
over DR&R rates, yes, there should be. And this bill
doesn't remove it. And so to the extent that those
pending cases involve how much can be collected for
DR&R - has it been overcollected, has it been
undercollected - we believe that the RCA will
absolutely still have the authority to make those
determinations.
REPRESENTATIVE CRAWFORD asked to hear from both [Mr. Harbour and
Ms. Levy]. Observing that it seems jurisdictions are being
changed, he inquired whether the likelihood of litigation
related to issues like DR&R is addressed in the fiscal notes.
CHAIR ANDERSON announced that he would hold that question.
Number 1790
REPRESENTATIVE GUTTENBERG pointed out that there was no House
Finance Committee referral for the bill. He expressed concern
about the indeterminate fiscal impact to the state and the zero-
impact [fiscal] notes. He asked Mr. Harbour to expand on that.
MR. HARBOUR replied:
I'm in a challenging position, surrounded by companies
and lawyers that I respect, and ... the governor has
appointed me and you [the legislature] confirmed ...
that appointment. And I'm in a position of having
submitted a fiscal note to the administration, through
channels, that ... says what I testified to, that we
believe there is a fiscal impact on the agency as a
result ... of litigation. And so all I can do is give
that to you [verbally] as my testimony. As to whether
the administration or the [DCED] - to which [the RCA
is] administratively attached - wishes to issue that
fiscal note or one that's revised, then one would have
to respect their ability to do so.
MR. HARBOUR concluded with the following on the DR&R issue:
I know that the state has testified that each
landowner has the ability through contract to make
sure that DR&R is done ... as a result of that lease.
And I just want to give you one example. Let's say
you have some privately owned territory. And only
about half of the pipeline is under state
jurisdiction, and of the federal jurisdiction, the BLM
doesn't assure the collection of DR&R funds, and the
FERC doesn't assure the collection of DR&R funds.
Only the RCA is the common stream that runs through
all of those to assure it's all done properly.
And in the event that the pipeline owners, anxious to
close the pipeline and leave the state, were to, say,
pay off private landowners - say, ... "Here's some
millions of dollars so that we don't have to perform
the DR&R obligation" - it may be that they'd still be
in trouble with environmental agencies or others, but
there wouldn't be a regulatory commission to certify
abandonment and that all the work had been done
consistently throughout the length of the pipeline.
So our objective is not to overreach - to get into DNR
or BLM or anybody else's business or contracts - but
to assure on behalf of you and the people of the state
that any DR&R done is seamless and appropriate.
Number 1647
REPRESENTATIVE CRAWFORD asked Mr. Harbour to fax his proposed
fiscal note or related information.
MR. HARBOUR replied:
Sir, I have a problem doing that. I have submitted it
to the administration through channels, and it has not
been approved by my administrative agency, the
Department of Community and [Economic Development].
And, therefore, I think it would be inappropriate for
me to submit my own draft.
Number 1594
RANDAL G. BUCKENDORF, Counsel, Anchorage Legal Department,
ConocoPhillips Alaska, Inc. ("ConocoPhillips"), began by noting
that he does his company's environmental and pipelines legal
work. He told members:
As you know, 49 days ago, on March 26, I presented
testimony to the subcommittee outlining why certain
changes needed to be made to the Alaska Pipeline Act.
The subcommittee recognized changes needed to be made,
and Representative Dahlstrom took the concepts we
presented, crafted HB 277, and has assisted since that
time in getting the parties together, forcing
discussions, and getting amendments in the current
committee substitute drafted to address the various
concerns that have been presented. ConocoPhillips
supported changes before you then and supports this
bill before you today.
MR. BUCKENDORF addressed what he characterized as myths and
misperceptions with regard to the bill. He said:
HB 277 does not overturn the recent RCA order on TAPS
rates, Order No. 151. I stated that that was not the
intent to you 49 days ago. It was not the intent of
the initial bill, and certain clarifications and
actual deletions from that bill have been made to make
sure that is not the case. HB 277 does not
legislatively approve the 1985 TAPS settlement
agreement. I think this bill makes that very clear.
HB 277 does not remove RCA's jurisdiction over
establishing intrastate [pipeline] tariffs. Ms.
Levy's testimony made that very clear.
Number 1491
MR. BUCKENDORF continued:
HB 277 does not foreclose the state's right to ensure
the proper development of its resources. It just
allocates jurisdictional authority as between several
agencies in a proper manner. HB 277 does not create a
jurisdictional gap that will allow the pipeline owner
to treat an affiliate shipper any differently than any
other shipper of oil.
Rather, the bill is about clarity and certainty.
HB 277 is about creating an atmosphere for the future
where companies big and small alike are clear about
the rules when they explore, develop, and build
pipelines to develop those resources.
MR. BUCKENDORF noted that the sectional analysis he'd intended
to address is very similar to that presented by the
administration through Ms. Levy.
Number 1443
MR. BUCKENDORF offered the belief that Sections 1, 2, and 3
address jurisdictional overlap and discontinuity that currently
exist between the RCA and DNR. He said:
Various amendments through [the House Special
Committee on Oil and Gas and the House Resources
Standing Committee] have provided clarity around what
certain of those changes were intended to do, and we
believe the current draft should be supported in doing
that.
Pipeline leases are essentially contractual
arrangements between every pipeline owner, whether
it's for an Alpine pipeline owner and it's a lease
between ... ConocoPhillips and Anadarko, or the trans-
Alaska pipeline. All of those leases have recently
been extended for an additional 30 years; we're
signatories to them, and the Department of Natural
Resources has signed them on behalf of the state. Any
implication that the RCA can attempt to insert itself
into those leases just as if they were a signatory
party, when clearly they are not, is unacceptable both
from a contractual and a regulatory point of view.
A myth that you will hear is that the bill will remove
RCA authority to oversee money collected on intrastate
rates for DR&R. That is incorrect. Another myth that
you will hear is that it is an essential duty of the
RCA to make sure enough money has been collected to
ensure DR&R is performed. I agree completely with Ms.
Levy. That is not the case. We are bound by law and
contract to perform DR&R on state, federal, and
private lands, whether or not the money has been
collected. I do our legal [work] for the Cook Inlet
pipeline that Ms. Levy ... referenced. It was not
collected. It was not allowed to be collected in
arrears. And yet, still, we're responsible for that
payment.
Number 1322
MR. BUCKENDORF turned attention to Sections 8 and 9, noting that
they've generated a lot of questions. He said:
Section 8 is a new section proposed by the
administration to further clarify the role of the
[attorney general]. We also agree that that codifies
current practice. I can speak from experience: the
attorney general's office has challenged every single
pipeline tariff ever filed in the state. I am
positive they will continue to do so. This clarifies
... their role in doing that.
And finally, as to applicability [in Section 9] and
certain of the questions surrounding Sections 1-5 and
7-8 of the Act, it is ... essential that those apply
and that there not be two bodies of law applicable
surrounding jurisdiction. Although we had recommended
[it and] we do believe it is still a decision that the
legislature ... could make to retroactively apply the
interest rate, the administration is not supportive of
that now, and we're not advocating for that at this
time. But ... jurisdictional clarification is
essential to apply at all points in time, and that is
how the current practice has been whenever the
legislature makes changes regarding simple
jurisdiction.
MR. BUCKENDORF closed by submitting his written testimony.
CHAIR ANDERSON called on Mr. Hanley, noting that he is a former
state Representative.
Number 1260
MARK HANLEY, Public Affairs Manager, Alaska; Anadarko Petroleum
Corporation ("Anadarko"), pointed out that the version of
CSHB 277(RES) being addressed by the committee, Version 23-
LS0980\I, although it had been read across the House floor,
wasn't what moved out of the House Resources Standing Committee.
He expressed concern about some unspecified provisions.
REPRESENTATIVE DAHLSTROM responded, "This is a work draft and
Mr. Hanley is correct - there are a few errors, technical
errors, that were made ... from the version that was accepted
and voted on in [the House Resources Standing Committee]." She
indicated her staff could address the differences.
CHAIR ANDERSON asked when Representative Dahlstrom had found out
about this. [There was no audible response.]
REPRESENTATIVE ROKEBERG inquired as to the problem areas.
The committee took an at-ease from 5:20 p.m. to 5:24 p.m.
Number 1174
CHAIR ANDERSON explained that there had been inadvertent errors
in transferring CSHB 277(RES) from the House Resources Standing
Committee. He suggested those errors probably wouldn't change
much of the testimony of Ms. Levy or Mr. Harbour, in particular,
but suggested it would be prudent to have public testimony,
including from Mr. Hanley, after the proper version was
obtained. [HB 277 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:25 p.m.
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