Legislature(1993 - 1994)

02/14/1994 05:00 PM House O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
             SPECIAL HOUSE COMMITTEE ON OIL AND GAS                            
                     JOINT PIPELINE BRIEFING                                   
                             HCR-12                                            
                                                                               
                        FEBRUARY 14, 1994                                      
                                                                               
                           PROCEEDINGS                                         
                                                                               
                        FEBRUARY 14, 1994                                      
  (Tape 94-6 - Side 1)                                                         
                                                                               
            CHAIRMAN GREEN:  I call the Special House                          
  Committee on Oil and Gas Matters together at five minutes                    
  after five.  We are on teleconference with Anchorage and                     
  Fairbanks.                                                                   
                                                                               
            Can you hear us in Anchorage?                                      
                                                                               
            ANCHORAGE LIO:  Anchorage hears you just fine.                     
  Fairbanks has not joined the conference as yet.                              
                                                                               
            CHAIRMAN GREEN:  Is there anybody in Anchorage                     
  that will be wanting to testify?                                             
                                                                               
            ANCHORAGE LIO:  Mr. Ottesen is here to answer                      
  questions.  He is from the Department of Transportation.                     
                                                                               
            CHAIRMAN GREEN:  Okay.  He just wants to answer                    
  questions, rather than testify?                                              
                                                                               
            ANCHORAGE LIO:  If you have any of them.                           
                                                                               
            CHAIRMAN GREEN:  Okay.  Thank you.                                 
                                                                               
            Well, we are going to take up House Concurrent                     
  Resolution 12, natural gas as a fuel for motor vehicles                      
  first, and then we will be fortunate to actually get an                      
  overview from the Joint Pipeline Coordinator's Office to                     
  discuss the overview, oversight of the Alyeska Pipeline.                     
                                                                               
            So first we are going to have the -- is there                      
  someone here -- okay.  If you would like to come up and give                 
  us a run through.  Please identify yourself for the record,                  
  David, and we will be off on House Concurrent Resolution 12.                 
                                                                               
            REPRESENTATIVE FINKELSTEIN:  Thank you, Mr.                        
  Chairman, members of the committee.  My name is David                        
  Finkelstein.                                                                 
                                                                               
            Where we left off last year was, we discussed the                  
  resolution.  The department and others had a number of                       
  suggestions.  So the CS that is before you, has a couple                     
  added from that hearing that members of the committee showed                 
  an interest in.                                                              
                                                                               
            One of them was, "Whereas natural gas could                        
  benefit the commercial motor carriage through the                            
  availability of reliable inexpensive fuel, meet the pending                  
  low sulphur requirements of the Clean Air Act, and whereas                   
  natural gas has improved and performed the arctic conditions                 
  of Alaska, having been in use in the North Slope Borough for                 
  more than ten years on a year round basis.  And then there                   
  is some other changes made that were comments from committee                 
  members, and exactly who the copies of the resolution were                   
  sent to, which is getting to be quite a list.                                
                                                                               
            Other than that, the situation is basically the                    
  same.  I did attend some of the meetings that the state                      
  sponsored during the interim on their cooperative approach                   
  in trying to advance natural gases as a fuel in vehicles.  I                 
  think there is a lot of optimism.  I just passed out an                      
  article from February 7 in the Anchorage Daily News on the                   
  same subject.  And other than that, I would be glad to                       
  answer any questions.                                                        
                                                                               
            CHAIRMAN GREEN:  Are there any questions from any                  
  of the committee members, for Representative Finkelstein?                    
                                                                               
            (No audible response.)                                             
                                                                               
            Do -- are there currently places that people can                   
  get natural gas, if they had the conversion, in Alaska.                      
                                                                               
            REPRESENTATIVE FINKELSTEIN:  There are some.  In                   
  Anchorage there is basically a fast fueling spot and a slow                  
  fuel spot out.  The conclusion of the working group to date,                 
  from the meetings I attended, and the minutes I've read, is                  
  that is the bottle neck of the system at this point, that --                 
  of private fleets, especially, are not about to convert                      
  until they have some minimum level which, I think, the                       
  Department, the state views as about four -- four to five in                 
  Anchorage, so that it is reasonably convenient.                              
                                                                               
            There are other communities, though, that can                      
  operate off of just one fueling spot for the town.  It's                     
  just the nature of Anchorage, that is relatively inefficient                 
  to travel beyond that to get to the fueling spot.                            
                                                                               
            The view of those who might be in the business of                  
  selling natural gas is -- it's hard for them to make the                     
  commitment without any sense that the Department is going to                 
  follow through, as well as the municipality, private fleets,                 
  and the federal government are going to follow through, that                 
  there really will be a market out there, if they make the                    
  expenditure.                                                                 
                                                                               
            But in all levels that is happening, there is                      
  still strong support within the municipality of Anchorage,                   
  at least for that one city.  And on the federal level,                       
  Clinton has recently imposed to a higher level of                            
  expectation for natural gas vehicles in the federal fleet.                   
  And from my understanding, in talking to the Department of                   
  Transportation people, the private fleet managers seem to be                 
  as interested as ever.                                                       
                                                                               
            So I've got faith that -- and I've been fairly                     
  impressed with the efforts the department has made in trying                 
  to work cooperatively with industry, and sort of move                        
  together, so that by the time these refueling stations might                 
  be put in, there really will be enough demand out there.                     
                                                                               
            CHAIRMAN GREEN:  Is there a preferred -- is it,                    
  like, a cryogenic compartment that this gas would go into                    
  and be stored as a compressed gas, or would it be liquified,                 
  or...                                                                        
                                                                               
            REPRESENTATIVE FINKELSTEIN:  I think all --                        
  someone from the department could add to this, once I'm                      
  finished.  But I don't think they have operated any                          
  liquified stations.  There is a bit more technology involved                 
  there.  I think, generally, they unloaded, and they have the                 
  transfer station, and from then on out, the distribution                     
  system is just compressed gas.  But, they can correct me if                  
  I'm wrong.                                                                   
                                                                               
            CHAIRMAN GREEN:  How does it compare economic                      
  wise, if you had the conversion?  Say, your vehicle was                      
  ready to run on natural gas?                                                 
                                                                               
            REPRESENTATIVE FINKELSTEIN:  The range of figures                  
  that I've seen, and, again, the department's experience is                   
  much more relevant here -- but the range of figures that                     
  I've seen is anywhere from 40 percent of the cost, up to 80                  
  or 90 percent.  That it's always lower per BTU, and lower --                 
  I think BTU is the term used, rather than "thermal unit."                    
  And, usually, 50 to 60 percent of the figures that I hear.                   
                                                                               
            It is very efficient, and it can be argued -- if                   
  you have refueling available, it can be argued it's worth                    
  the investment for even each of us right now.  It's just the                 
  refueling station issue, that's, you know, created the                       
  problem.                                                                     
                                                                               
            It has a variety of other benefits on the engine                   
  as well.  It's a more clean burning fuel.  It doesn't have                   
  the tendency to build up deposits.                                           
                                                                               
            CHAIRMAN GREEN:  Do you suppose it would ever be                   
  clean enough that you wouldn't have to have a certificate                    
  inspection, if you had a gas car?                                            
                                                                               
            REPRESENTATIVE FINKELSTEIN:  Well, those are a lot                 
  after carbon monoxide.  I don't know how we deal with the                    
  particular exemption program, but I don't think you get the                  
  variation you get in traditional gasoline powered engines,                   
  where it's dependant on a complex technology to reduce the                   
  emissions.                                                                   
                                                                               
            It's, you know, inherent in the engines, so even                   
  the -- a more poorly tuned engine isn't going to be off to                   
  the extreme.  But all these things, you should ask, again,                   
  the department, if they have any thoughts beyond mine,                       
  because I would not pretend to be an automotive expert.   I                  
  can barely keep my car running.                                              
                                                                               
            CHAIRMAN GREEN:  Anybody else have any questions                   
  for Representative Finkelstein?                                              
                                                                               
            (No audible response.)                                             
                                                                               
            Any questions from Anchorage?                                      
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  Mr. Chairman?                       
                                                                               
            CHAIRMAN GREEN:  Yes, sir.                                         
                                                                               
                                                                               
       JEFF OTTESEN (VIA ANCHORAGE):  This is Jeff Ottesen.                    
  I'm with the Department of Transportation, and have been, I                  
  guess, spearheading, more or less, the -- our conversion of                  
  our fleet -- partial conversion to natural gas for the last                  
  few years.                                                                   
                                                                               
            It is interesting that your meeting is today.  I                   
  spent the last three days riding one of our first new CNG                    
  vehicles here in Anchorage around.  I drove a CNG vehicle to                 
  this meeting in the last 15 minutes.  And I could tell you                   
  that they operate every bit as well as a gasoline vehicle;                   
  you can't tell the difference.                                               
                                                                               
            To answer a couple of questions that were raised.                  
  The exemption for I & M.  If your vehicle is a dedicated CNG                 
  vehicle, that is, it only can burn CNG, yes, it can be                       
  exempt.  If it's a dual fuel vehicle, which is probably the                  
  most practical choice, that is a vehicle that can burn                       
  either gasoline or CNG -- it's a switch -- then it has to                    
  maintain the I & M, because of the gasoline that is present                  
  there.                                                                       
                                                                               
            As far as the LNG versus CNG, that's really the                    
  same chemical fuel source, it's only a matter of how it is                   
  stored.  Either being delivered to the refueler, or,                         
  ultimately, to the vehicle.                                                  
                                                                               
            LNG is simply natural gas that has been liquified.                 
  It can (indiscernible) many temperatures.                                    
                                                                               
            CNG is simply natural gas that has been compressed                 
  to very high pressures, but it's not being stored at                         
  cryogenic temperatures.                                                      
                                                                               
            There are advantage to the LNG that we have                        
  available there at Kenai, that's a very economical method of                 
  transporting natural gas.  It can be put in a truck like                     
  gasoline.  It can be carried to the refueling location,                      
  beyond the range of the current pipelines.  To places like                   
  Fairbanks.  Stored there at refueler, and then loaded into                   
  automobiles or heavy trucks, for ultimate use by the                         
  vehicle.                                                                     
                                                                               
            So I think Representative Finkelstein is right.                    
  The problem now is the refueling infrastructure.  There is a                 
  lot of interest in fleet owners here in Anchorage, from what                 
  I hear, in getting into the business of having CNG.  They                    
  have no place to buy the gas right now.                                      
                                                                               
            CHAIRMAN GREEN:  Would it be a fair assumption,                    
  then, that the -- if you were going to a cryogenic system,                   
  that you would have a greater range than you would under                     
  compression?                                                                 
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  That is correct.                    
  If you go to cryogenic as your source on board, that is                      
  beginning to show up more and more in the commercial side of                 
  the industry.  That is the -- I know the bus system in                       
  Seattle has just opted to go to LNG, because they get                        
  greater range than tanks.  Likewise, the long over-the-road                  
  carriers now, around the country, are converting to natural                  
  gas.                                                                         
            But once the gas is being used by the engine                       
  itself, it's the same gas as if it were stored in the                        
  compressed form.  The LNG is just a more dense form of                       
  storage.                                                                     
                                                                               
            CHAIRMAN GREEN:  And I guess my last questions --                  
  I don't want to monopolize the questions.  But how would,                    
  say, either a compressed gas, or a liquified gas, be safety                  
  wise, as compared to conventional gasoline?                                  
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  Well, I'm not an                    
  expert, but I've listened to a lot of experts talk.  And my                  
  own skepticism, I think, has come full circle -- or, I                       
  should say, half circle.  I have come from being a skeptic                   
  of safety, and now believing that natural gas is probably                    
  safer.  And I will give you a few reasons why.                               
                                                                               
            One, the tanks, themselves, are much more durable,                 
  much stronger than a conventional gasoline tank.  They are                   
  capable of withstanding a high velocity of rifle rounds.                     
  They are capable of being dropped off a six-story building,                  
  and surviving in tact.  So just their durability, as                         
  compared to sheet metal, which is how gasoline is stored, is                 
  much better.                                                                 
                                                                               
            Secondly, the fuel has a lower range of ignition.                  
  The range that it will ignite, the amount of gasoline versus                 
  the atmospheric conditions, has a much narrower band of                      
  accountability than gasoline.                                                
                                                                               
            And then, finally, the gas, if it does have a                      
  spill, you do have a break in storage, it's lighter than                     
  air.  It quickly dissipates and blows away.  Where,                          
  gasoline, being heavier than air, pools and settles down.                    
                                                                               
            But for all those reasons, it's really a safer                     
  fuel.                                                                        
                                                                               
            CHAIRMAN GREEN:  Thank you, Jeff.                                  
                                                                               
            Any questions from anyone in the audience?                         
                                                                               
            (No audible response.)                                             
                                                                               
            What we need to do, I think, is first adopt the                    
  substitute as the bill.  I would entertain a motion to that                  
  effect.                                                                      
                                                                               
            REPRESENTATIVE KOTT:  Well, Mr. Chairman, I wonder                 
  if I might be able to ask Jeff a question.                                   
                                                                               
            CHAIRMAN GREEN:  Sure.                                             
                                                                               
            REPRESENTATIVE KOTT:  It seems to be in order at                   
  this particular point in time.                                               
                                                                               
            Jeff, Representative Kott here.  I just have a                     
  question for you regarding the number of natural gas                         
  vehicles that are currently in operation in the state of                     
  Alaska.  Do you have any estimate as to how many those are?                  
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  I don't have a hard                 
  estimate.  I think, from what I've heard at the various                      
  conferences we've held, I think it's well over 100 now, and                  
  growing.  The state fleet here is just in the process of                     
  adding six to its inventory.  That will be our first six.                    
  We have a variety of vehicle types, as well as some that are                 
  dedicated natural gas.  That is, that is the only fuel.  We                  
  also have a Ford Taurus that is a bi-fuel.  Some are off the                 
  factory assembly line conversions, and some are being                        
  converted -- after-market conversions.  That is, the state                   
  has done it itself.                                                          
                                                                               
            So we even have these vehicles available for                       
  people that are visiting Anchorage, and need to use a state                  
  car for a day or three.  They could be made available.  Give                 
  me a call there in Juneau, and I could put you in touch with                 
  people that could schedule that car.                                         
                                                                               
            REPRESENTATIVE KOTT:  I would be more than happy                   
  to oblige you in using one of those vehicles, as long as I                   
  don't have to report it on my ethics report.                                 
                                                                               
            Those numbers that you cited, over 100, are those                  
  state owned vehicles, or is that a combination of public and                 
  private?                                                                     
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  I believe that's                    
  public and private.  There are people that own these                         
  vehicles as individual citizens.  There are various                          
  businesses that are using them now.  There is a new                          
  coalition of public and private fleet managers here in                       
  Anchorage that are just this week, I believe, going to sign                  
  their resolution as -- basically, their bylaws, and that                     
  includes one of the Anchorage taxi cab fleets, the                           
  municipality and state fleet, and other fleet owners,                        
  basically getting together and trying to work -- get a                       
  teamwork environment to make this happen.                                    
                                                                               
            In the three or four days here in town that I've                   
  had a vehicle, driving around, and I have been stopped three                 
  times with people wanting to know what this car is all                       
  about, and how does it drive.  Does it work?  There's a lot                  
  of difference.                                                               
                                                                               
            REPRESENTATIVE KOTT:  Thank you for your comments.                 
                                                                               
            CHAIRMAN GREEN:  Jeff, I have another comment.                     
  This is Representative Green.                                                
                                                                               
            How does the maintenance compare on a natural gas                  
  engine to a gasoline engine?                                                 
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  We held a                           
  conference a year ago December, where we brought fleet                       
  managers from around the country here to talk about that,                    
  and they all reported the same thing.  The engines simply                    
  burn cleaner on natural gas.  It doesn't put the                             
  contaminates into the oil.  It doesn't foul the spark plugs.                 
  You don't get the (indiscernible) on valves, and that sort                   
  of thing, in the engine, or the rings.  they'll last a long                  
  time.                                                                        
                                                                               
            CHAIRMAN GREEN:  Thank you.                                        
            Any other questions?                                               
                                                                               
            (No audible response.)                                             
                                                                               
            Okay.  I would entertain a motion to adopt the                     
  committee substitute.                                                        
                                                                               
            REPRESENTATIVE KOTT:  So moved.                                    
                                                                               
            CHAIRMAN GREEN:  It's been so moved by                             
  Representative Kott.  Any objections?                                        
                                                                               
            (No audible response.)                                             
                                                                               
            So ordered.                                                        
                                                                               
            I would now entertain a motion...                                  
                                                                               
            UNIDENTIFIED MALE:  Mr. Chairman, do we have                       
  anybody from the oil and gas industry in the audience that                   
  can give us an estimation as to how many natural gas                         
  vehicles are currently in operation on the North Slope                       
  Borough, since they've been up there for about 10 years or                   
  so?  Any idea?                                                               
                                                                               
            CHAIRMAN GREEN:  I don't know whether industry --                  
  I see, we have a member, Department of Environmental                         
  Conservation.                                                                
                                                                               
            Do you happen to know, or have a feel for -- I                     
  guess what you're really after, is just kind of an                           
  approximation.                                                               
                                                                               
            UNIDENTIFIED SPEAKER:  Yes.                                        
                                                                               
            MEAD TREADWELL:  Mr. Chairman, Mead Treadwell,                     
  Deputy Commission, ADEC.                                                     
                                                                               
            As I understand it, the firm NORGAS, which is one                  
  of the people you are directing this to, has been operating                  
  its truck fleet on the North Slope.  I don't know how many                   
  it is, but it's not a large fleet.  My guess is five to 10                   
  vehicles at this point.  There has been -- there is also a                   
  source of natural gas, as you know, that's not connected to                  
  Prudhoe Bay, that operates in Barrow.  And we had at the                     
  conference last year, a representative of the North Slope                    
  Borough, and I believe they had, with that gas utility,                      
  maybe three to five vehicles, as well.                                       
                                                                               
            They actually -- it was kind of an interesting                     
  situation there, because the price of gasoline was far more                  
  expensive than the price of natural gas, and you would think                 
  that many more vehicles would have converted.  But the                       
  explanation given at the conference was that the owners --                   
  the people who sold gasoline had a major choice in the                       
  decision of what kind of cars were purchased, and that's why                 
  they stuck with gasoline.                                                    
                                                                               
            But the utility that controlled its own vehicles,                  
  has been running on natural gas for some time, and that's                    
  the gas utility fleet there.  So the two North Slope gas                     
  utilities have it.                                                           
                                                                               
            Mr. Chairman, I had raised my hand when you were                   
  asking for questions, and if Jeff is still on the line, I --                 
  perhaps a colloquy between the two departments.                              
                                                                               
            Jeff had asked me the other day what additional                    
  incentives DEC might be able to come up with to help on                      
  this.  And as you may be aware, our state implementation                     
  plan for clean air is in the Department of Law right now for                 
  review.  It's a 3,000 page document.  It's probably the                      
  weightiest set of regulations ever contemplated, much less,                  
  had anything to do with developing.  But that's what we were                 
  required to do, and that's about one-eighth the size of                      
  Oregon's 20,000 page submission on the Clean Air Act.                        
                                                                               
            But anyway, that is in the Department of Law right                 
  now for review, and as soon as that is adopted, we have the                  
  authority to trigger a mechanism that would allow the                        
  Department of Transportation to use some of its so-called                    
  CMAC funds to help buy a gas refueling station.  And if we                   
  do that, I know that -- Jeff, you might want to explain the                  
  public-private partnership that you have in mind that could                  
  help get some greater refueling facilities in the                            
  marketplace.                                                                 
                                                                               
            JEFF OTTESEN (VIA ANCHORAGE):  Would that be                       
  appropriate?                                                                 
                                                                               
            CHAIRMAN GREEN:  Yes, please go ahead.                             
                                                                               
            CHAIRMAN GREEN:  The notion is, we could give some                 
  of our -- some of our highway funds are dedicated to a                       
  purpose called CMAC, or Conjunction Mitigation/Air Quality.                  
                                                                               
            How we use that money is controlled by the state                   
  implementation plan that Mead just talked about.  He needs                   
  to adjust this plan to make our spending, in this fashion,                   
  legitimate.  What then happens -- what we are hoping to                      
  envision would be, some form of a joint public-private                       
  partnership allowing one or more stations to go in the                       
  Anchorage area, that would be available to both public                       
  fleets and to private fleets.                                                
                                                                               
            I think, just in kind of a broad brush thinking                    
  proposal, or strong (indiscernible) proposal, we're                          
  imagining an RFP, which would basically say, we have this                    
  much money available to install the system.  We are looking                  
  for a private partner to come in, make that installation,                    
  operate it and maintain it, and to sell the natural gas                      
  automotive fuel back to the state's fleet, on a long term                    
  basis, at a discounted cost.  So that we would recoup that                   
  investment.                                                                  
                                                                               
            At the same time, those (indiscernible) system                     
  would be available to any other user that would care to come                 
  in and get refueled.                                                         
                                                                               
            CHAIRMAN GREEN:  Thank you.  Thank you, Mead, and                  
  thank you, Jeff.                                                             
                                                                               
            Representative Kott?                                               
                                                                               
            REPRESENTATIVE KOTT:  Thank you, Mr. Chairman.  I                  
  would just call your attention to page 2, line 8, where it                   
  talks about the number of natural gas vehicles currently in                  
  operation within Alaska.  And per the testimony of Jeff, I                   
  think we can probably make this -- tighten it up a little                    
  more, and make it a little more palatable to those who would                 
  not seemingly think it's a good idea, by, perhaps, offering                  
  a friendly amendment, making that number 50 to 100.  Since                   
  we do have over 600,000 registered vehicles in the state, I                  
  think it would add a little more thrust to the proposal.                     
                                                                               
            I'm certainly not wanting to hold this up in this                  
  committee, because it does have two additional committees,                   
  plus finance, which it probably ought to be away from, but                   
  -- I think it would give it a little more teeth in the                       
  matter, if we substantiated the number to a higher number.                   
                                                                               
            CHAIRMAN GREEN:  Do you feel comfortable with                      
  that, David, that -- is that still a number that you can                     
  live with?                                                                   
                                                                               
            REPRESENTATIVE FINKELSTEIN:  Actually, Jeff's view                 
  is more important.  If Jeff thinks it is correct, then                       
  that's more correct.  I just...                                              
                                                                               
            REPRESENTATIVE KOTT:  I'd offer that as a friendly                 
  amendment, then.                                                             
                                                                               
            THE COURT:  And the sponsor has no problem with                    
  that?                                                                        
                                                                               
            (No audible response.)                                             
                                                                               
            Anybody else have any comment on that?                             
                                                                               
            (No audible response.)                                             
                                                                               
            You're offering that as an amendment?                              
                                                                               
            (No audible response.)                                             
                                                                               
            Okay.  That will then read, over 100 natural gas                   
  vehicles.                                                                    
                                                                               
            REPRESENTATIVE OLBERG:  Should we ask for                          
  unanimous consent?                                                           
                                                                               
            CHAIRMAN GREEN:  Beg your pardon?                                  
                                                                               
            REPRESENTATIVE KOTT:  And I would ask unanimous                    
  consent of this amendment, with no objection.  Don't think                   
  about it too long.                                                           
                                                                               
            CHAIRMAN GREEN:  Any objection to that change?                     
                                                                               
            REPRESENTATIVE GARY DAVIS:  Good observations.                     
                                                                               
            CHAIRMAN GREEN:  If not, so ordered.                               
                                                                               
            REPRESENTATIVE KOTT:  And, Mr. Chairman, I make a                  
  motion, I would move this out of committee, with unanimous                   
  consent, as amended, to the next committee referral, which                   
  is Resources.  I think this is a good idea.  We've ridden                    
  this horse around the corral for a long time, and it's time                  
  to open the corral door and let it loose.                                    
                                                                               
            CHAIRMAN GREEN:  Any objection?                                    
                                                                               
            (No audible response.)                                             
                                                                               
            So ordered.                                                        
                                                                               
            REPRESENTATIVE FINKELSTEIN:  Thank you, sir.                       
            CHAIRMAN GREEN:  Yes, sir.                                         
            While the document is being circulated, I would                    
  like to now introduce Jerry Brossia, of the Pipeline                         
  Coordinator's Office, who will give us an overview, and                      
  hopefully we will introduce his federal counterpart, John                    
  Santora.                                                                     
                                                                               
            MR. BROSSIA:  Thank you, Mr. Chairman, and members                 
  of the committee.  I am Jerry Brossia, the State Pipeline                    
  Coordinator.  And with me here today is my counterpart on                    
  the federal side, Mr. John Santora.  He is the authorized                    
  officer for the Bureau of Land Management, and Rob                           
  McWhorter, of our office, is also here.                                      
                                                                               
            Again, I think you recognize Mead Treadwell, of                    
  the Department of Environmental Conservation, is here today.                 
  And we have a couple of folks with Alyeska, Paul Richards,                   
  and Mr. Rob Shoaf, that might be able to answer questions.                   
                                                                               
            First of all, I do have some prepared notes here                   
  that I will hand out to anyone who wants a copy of those.                    
                                                                               
            I think sometimes, as we go through life, it's                     
  hard to make my priorities your priorities.  And one thing I                 
  am pleased about is, you have the interest in hearing a                      
  little bit about the Alyeska Pipeline.  Because, to me, the                  
  Alyeska Pipeline is one of the most important assets that                    
  Alaska has.  It represents symbolically, the steel backbone                  
  of our economy.  It affects each and every one of us, if,                    
  for some reason that pipeline were to be shut off.                           
                                                                               
            And each year Alyeska employs 1800 people, or so,                  
  and they have an operating budget of some half billion                       
  dollars.                                                                     
                                                                               
            Tonight I would like to briefly talk about the                     
  Joint Pipeline's Audit of Alyeska Pipeline Service Company.                  
  And before I start, talk a little bit about the Joint                        
  Pipeline Office.                                                             
                                                                               
            It's kind of an old idea in industry to form                       
  partnerships, and joint ventures, and things, but it is a                    
  new idea to government.  And over the last four years we                     
  have formed a series of objectives to essentially strengthen                 
  our relationship with state agencies and federal agencies,                   
  to share resources, knowledge -- kind of pull together, if                   
  you will, to work our way through difficult problems.                        
                                                                               
            Quite often the situation in government is a big                   
  tug of war where we all fall in, and one sort of shark, or                   
  another, in the water, to capitalize on that.                                
                                                                               
            In this case, I believe the Joint Pipeline Office                  
  is working as a team.  We have a number of state and federal                 
  agencies in the office.  The Department of Natural                           
  Resources, the Department of Labor, the Department of                        
  Environmental Conservation, the Department of Fish and Game,                 
  the Governor's Division of Governmental Coordination is also                 
  in the office.                                                               
                                                                               
            On the federal side, the key lead agency is the                    
  Bureau of Land Management, and then the main federal                         
  regulatory agencies in that office are the Department of                     
  Transportation's Office of Pipeline Safety, and the                          
  Environmental Protection Agency.  We also have a member of                   
  the U. S. Fish and Wildlife Service in the office.                           
                                                                               
            The idea of audits of the Alyeska Pipeline is not                  
  new.  We have, for some time, taken an in depth look at a                    
  variety of problems.  We've looked at various weld records,                  
  we've looked at corrosion, air issues, oil spill plans, and                  
  so on.                                                                       
                                                                               
                                                                               
            There are other audits that have gone on as well                   
  at Alyeska Pipeline Service Company.  You may have recently                  
  heard that the owners conducted an audit of Alyeska.  And                    
  it's our intent, as well as the other government agencies                    
  intent, and Alyeska, to put all of the audit findings on the                 
  table, categorize them, sort them, and try to work through                   
  them in one single process.                                                  
                                                                               
            One might ask, "Well, why do you guys do all these                 
  audits?"                                                                     
                                                                               
                                                                               
            Because we had a lot of allegations.  We had                       
  allegations from people inside the company, whistleblowers,                  
  if you will.  We had allegations from United States                          
  Congress, and they held hearings, as you well know, and it                   
  essentially caused us to take a very close look at the                       
  operations of the pipeline.                                                  
                                                                               
            One of the main issues that you will repeatedly                    
  hear are Alyeska has management problems, they have quality                  
  assurance problems, and they have some hardware problems.                    
  Now, what does that mean?                                                    
                                                                               
            The quality assurance is essentially a way of                      
  establishing what your criteria are for anything, whether                    
  it's building a pipeline or any kind of a product.  And then                 
  setting up a series of systems, and programs, and check                      
  lists, to give you some assurance that the original set of                   
  specs and engineering criteria are being met.                                
                                                                               
            Now, as one increases the risk of some kind of a                   
  catastrophe, be it pipeline rupture, or loss of life, or                     
  something like that -- the risk.  If it were to increase                     
  your assurances, should essentially parallel that, and there                 
  should be more assurances in a worst case situation.                         
                                                                               
            These audit findings have essentially been based                   
  on what is called a "vertical slice"  of the pipeline.  We                   
  looked at Pump Station 1, 6, 10 and the Valdez Marine                        
  Terminal.  We talked to almost 250 employees at Alyeska.                     
  We've gone through a lot of records to come up with these                    
  findings.                                                                    
                                                                               
            Originally, again, at Congress' urging, we had a                   
  relatively quick schedule to meet.  The schedule started the                 
  first of September, and we entered into what we call the                     
  findings process.  That was two months long.  It ended in                    
  early November, followed by oversight committee hearings.                    
  Those oversight committee hearings ended, and we issued a                    
  Phase 2 contract to come up with some corrective actions,                    
  particularly focusing on management problems at Alyeska and                  
  their quality program.  Currently, we are looking at                         
  solutions for the hardware problems.                                         
                                                                               
            After the corrective actions are identified, then                  
  we will be going into the implementation stage.  And that                    
  implementation stage is going to run until about December of                 
  1994.                                                                        
                                                                               
            So essentially, what did we find in this process.                  
   We had a number of positive effects that resulted and                       
  affects safety -- worker safety, particularly.  The effects                  
  on pipeline integrity, from vertical supports, and so on.                    
  Seismic design of different issues.  And we had some                         
  environmental issues.                                                        
                                                                               
            Now one of the main issues, I think, that everyone                 
  wants to hear about is:  "What are you going to do," and                     
  "How are you going to fix it," and "What is it going to                      
  cost?"                                                                       
                                                                               
            And I can't really give you definitive answers,                    
  but I can tell you the process that we are going through                     
  today.  And essentially what we are doing is establishing a                  
  base line on what the laws, and regulations, and codes, and                  
  specs are.  And that will become the floor of the minimum                    
  amount that Alyeska will have to do to comply with the law.                  
                                                                               
            On the other hand, there may be some areas of                      
  higher levels of standards that have to be set to enhance                    
  the program at Alyeska.  And we have recently been going                     
  through the drill to decide what those corrective actions                    
  are, based on risk and cost benefits.  And this phase will                   
  probably take us over the next couple months, followed by                    
  essentially, again -- we'll come up with the corrective                      
  action, and then we will be implementing fixes, and hope to                  
  have this implementation stage carried out by December of                    
  1994.                                                                        
                                                                               
            The findings have been placed into three different                 
  categories, again, based on risk.  Class 1 being the most                    
  severe.  They are the kind of problems that break out into                   
  management, broadly, and secondly, to hardware problems.                     
                                                                               
            Alyeska has suffered, perhaps, from somewhat of a                  
  construction mentality, when they should be in more of a                     
  processing mentality, an operation mentality.  I think we                    
  all recognized that Alyeska is very good at building                         
  pipelines, and very good at moving oil, and they need to get                 
  out of a construction mentality and into one of more                         
  operations oriented, safety oriented.                                        
                                                                               
            They have recognized that, and they have had their                 
  own series of contractors and auditors that have developed a                 
  new philosophy, if you will.  Some of you may have read the                  
  paper recently, and have seen the article by David                           
  Pritchard, where he talks about changing attitude, and I                     
  believe that's true.  They are changing their attitude                       
  there.                                                                       
                                                                               
            They are interested in having processes in place                   
  that protect workers, and give you some assurance that the                   
  blueprints are in place, the engineering process are in                      
  place, check lists for inspectors in place, and so on.                       
                                                                               
            CHAIRMAN GREEN:  Can I interrupt you just for a                    
  moment.                                                                      
                                                                               
            MR. BROSSIA:  Certainly.                                           
                                                                               
            UNIDENTIFIED MALE:  As you discussed Alyeska                       
  moving into the operations mentality, or safety oriented                     
  mentality.  It is my understanding that Alyeska has one of                   
  the best safety records of any industry, especially the oil                  
  industry.  Is that basically...                                              
                                                                               
            MR. BROSSIA:  Oh, I think that's true.  I think                    
  there are things they can do to improve, but I would agree                   
  with you, they have an excellent safety record.  And they                    
  certainly have a good record, as far as keeping the oil                      
  inside the pipe.                                                             
                                                                               
            The main hardware issues and big cost items are                    
  going to be evolving around electrical problems.  And I                      
  can't tell you again what the cost would be, but I can tell                  
  you, it's a substantial effort.  Several hundred workers                     
  will be involved with that electrical repairs at the Valdez                  
  Marine Terminal, and then they will follow it up through the                 
  pump station, so it is going to be a substantial amount of                   
  work.                                                                        
                                                                               
            There are some other issues, in the way of                         
  hardware issues, vertical support members, where the pipe is                 
  slid over next to it.  It could cause some structural                        
  problems, and again we want to do a careful engineering                      
  analysis of that before we just go out and put new VSM's in,                 
  and do sidebars, and so on.                                                  
                                                                               
            The second type of finding was called a Class 2                    
  finding.  Examples would be, drawings not in place.  Quite                   
  often electrical workers will go into boxes and not know                     
  what wires are hot and what wires -- whether they're color                   
  coded properly, and so on.  Fire safety programs could be                    
  improved at the Valdez Marine Terminal.  Some of the                         
  emissions at the pump stations aren't being monitored in the                 
  relief systems.                                                              
                                                                               
            Class 3 findings.  The kind of finding that causes                 
  loss of time.  Inefficient.  They could beef up their                        
  training program, to make sure they got the right training                   
  for the right job.  Alyeska does have a good training                        
  program, but in some cases, the right training is not                        
  completed for the right individual work.                                     
                                                                               
            Leak detection.  Alyeska, again, probably has a                    
  good leak detection system, but it probably can be improved,                 
  and they have been working on that for the last year, and                    
  they will be working on it to try to improve the accuracy of                 
  it, so they could get it down in probably the 1500 barrel                    
  size leak right now.  It's probably in the 3000 to 5000                      
  barrel size.                                                                 
                                                                               
            What have we been doing about all of this?  We                     
  have essentially tried to verify a lot of work that Alyeska                  
  has done.  We have brought on a few more people.  We hired                   
  several consultants to give us technical expertise, so that                  
  we know that we are fixing -- or that Alyeska is doing the                   
  right fix, if you will, and we will be looking at those                      
  fixes, or cost benefits, risk and so on.                                     
                                                                               
            We stepped up our monitoring program.  We                          
  participated in five or six drills in the last six months,                   
  and tried to have a more active field presence, in general.                  
                                                                               
            In the short term -- it's a bit hard to see, but I                 
  think if you follow along in your handout, you could --                      
  we've got sort of a five or six point action plan.  We have                  
  an audit team that is essentially tracking the design review                 
  of each one of these findings.  We will then work with                       
  Alyeska on approval of the various fixes.  We will have an                   
  inspection team in the field that will sign off on them, and                 
  then they will pass it back, in some cases, to various                       
  regulatory agencies for their reviews and approvals.                         
                                                                               
            By this time next year, we hope to be able to tell                 
  congress, essentially, the status of all these findings,                     
  whether they are complete, in progress, or some of them may                  
  have regulatory actions that are going on.                                   
                                                                               
            At this point I would like to turn it over to John                 
  Santora, and John is going to talk to you a little bit about                 
  the future of the office, and then I will come back and be                   
  happy to answer any questions.                                               
                                                                               
            John?                                                              
                                                                               
            MR. SANTORA:  Thank you, Jerry.                                    
                                                                               
            Mr. Chairman, and members of the committee.  My                    
  name is John Santora.  I am a Bureau of Land Management                      
  employee, and presently I am the authorized officer for the                  
  bureau, with reference to the TransAlaska Pipeline.                          
                                                                               
            As Jerry has said to you, the TransAlaska Pipeline                 
  System is a vital resource to the state of Alaska, for the                   
  continued development of proven energy resources within the                  
  state.  It is also a vital resource for the consideration of                 
  future energy resources within the state of Alaska.  And it                  
  is our intention, within the Joint Pipeline Office, by                       
  lessons earned from these audits, to ensure that the                         
  pipeline system is not a contentious issue with regard to                    
  public safety, worker safety, environmental compliance, and                  
  system integrity, and any consideration of future resource                   
  development.                                                                 
                                                                               
            To achieve that goal, we have taken steps to focus                 
  and look at our existing monitoring program and oversight of                 
  the TransAlaska Pipeline System activities, and to                           
  strengthen that program, and to improve it, so that we can                   
  ensure that the lessons learned, as a consequence of these                   
  audits, are not repeated in the future.                                      
                                                                               
            Some of the things that we have done to initiate                   
  that action is, we've initiated and developed a memorandum                   
  of agreement, which has been signed by six state agencies                    
  and five federal agencies.  That memorandum of agreement,                    
  now, is a formalized method for those people who are in                      
  policy level management positions to come together quarterly                 
  to discuss areas of concern and consideration, with                          
  reference to their oversight and monitoring responsibilities                 
  for that TransAlaska Pipeline System.  That is the                           
  significant step to strengthen the union that has been                       
  formed between state and federal agencies, insofar as our                    
  joint oversight and monitoring of the TransAlaska Pipeline                   
  System.                                                                      
                                                                               
            We are also presently reviewing our entire office                  
  structure, our organizational structure, our staff                           
  composition.  We are considering how we can better utilize                   
  existing staff, the skill mix that we need permanently                       
  within that office, and also, how we can best utilize, in                    
  certain situations, consultants to assist and help with very                 
  specialized issues, such as seismic concerns, which are now                  
  under consideration, as a result of the audit.                               
                                                                               
            We have a very positive outlook.  We've come a                     
  long way in learning how to work together positively and                     
  pro-actively.  And it is our intention to continue to                        
  improve, with the focus on ensuring that that pipeline                       
  system can never be an issue of contention regarding any                     
  future development of Alaskan resources.                                     
                                                                               
            That's all I have to say.  Any questions?                          
                                                                               
            CHAIRMAN GREEN:  Any questions of either of you?                   
                                                                               
            (No audible response.)                                             
                                                                               
            When this pipeline was constructed, it was kind of                 
  put up there as one of the major wonders of the world.  It                   
  was state of the art.  Largest private capital -- and all                    
  these superlatives.  And for years it seemed to work well.                   
  You've got an excellent safety record.  You've got all these                 
  things.  What happened two or three years ago to start this                  
  unwinding?  This situation with the whistleblowers, and                      
  subsequently, all of the problems that you have encountered                  
  since then?                                                                  
                                                                               
            MR. SANTORA:  Mr. Chairman, let me try and answer                  
  that question using an analogy, if I may.  What you say was                  
  true.  At the time, the pipeline was a state  of the art                     
  facility, but it was a first of a kind.  That type of                        
  pipeline, in the Arctic environment, and in the sub-Arctic                   
  environment, had never been constructed anywhere else in the                 
  world.                                                                       
                                                                               
            The best engineering judgments were applied to                     
  those unique new areas of consideration, such as the                         
  permafrost conditions, the discontinuous permafrost                          
  conditions, the construction of an above-ground pipeline,                    
  with some very unique designs for those vertical support                     
  members, given what type of supporting soils that they were                  
  placed in.  And all of the other considerations that had to                  
  be taken.                                                                    
                                                                               
            The tremendous Delta-T that the pipeline operates                  
  at, from oil starting out at around 105 degrees, now                         
  probably around 100 degrees on an average, down the                          
  pipeline, and the extreme winter and summer temperatures.                    
  As you are well aware, we can have 90 degrees in Fairbanks                   
  in the summer, and we can see 40 below in the winter, and                    
  yet that pipe must stay within an operational range, if you                  
  will, on a vertical support member.  All of those things.                    
                                                                               
            But the analogy I want to draw to you is, the                      
  freeways in Los Angeles were designed to the best standards,                 
  using what they considered, at the time, the best seismic                    
  and earthquake designs that they knew of.  But times have                    
  changed.  Technology has improved.  Design methods have                      
  improved.  The methods of analysis of those particular                       
  structures and the stresses they will be subjected to, have                  
  improved.  And as we saw, there was a retrofit program taken                 
  as lessons learned from previous earthquakes, to strengthen                  
  those facilities.                                                            
                                                                               
            The ones that were strengthened survived the last                  
  earthquake.  The ones that had been designated to be                         
  strengthened, but they were unable to get to because of                      
  budget and other considerations, those failed.                               
                                                                               
            Let me suggest to you that that type of a failure                  
  contributes significantly to the cost.  It is no longer a                    
  retrofit now, it is a total removal, which is extremely                      
  expensive, and a total reconstruction, which is far more                     
  expensive than a retrofit.                                                   
                                                                               
            Let's look at the pipeline.  There are areas right                 
  now.  The pipeline, as it exists, is safe.  There is no                      
  threat from the pipeline in the given conditions we have                     
  today.  But if we were to subject the pipeline to its                        
  maximum design considerations for seismic, given some of the                 
  lessons we've learned now, there is a question with regard                   
  to certain supports and certain other physical features on                   
  the line, as to whether it would be prudent to strengthen                    
  those, because they do not, at this time, appear to be                       
  seismically capable of withstanding the accelerations that                   
  they would be subjected to.                                                  
                                                                               
            If we make reasoned retrofits now, and we should,                  
  God forbid, have another seismic event of that magnitude in                  
  the state of Alaska, I would suggest to you that the                         
  remedial actions that might have to be taken would be far                    
  less than if we left the conditions as they are.  Because                    
  the state of Alaska, for instance, could not do well if we                   
  had to shut the pipeline down as a result of some seismic                    
  event, for six months, before we could repair it, as opposed                 
  to maybe a month.  That would be the difference.                             
                                                                               
            Think, again, of the work that is going to have to                 
  be done in the Los Angeles area because of that seismic                      
  event, as opposed to the work that would have been done if                   
  they had the means, and were able, within a reasonable time                  
  frame, to retrofit those facilities that were so severely                    
  damaged.                                                                     
                                                                               
            So the design, Mr. Chairman, was good.  The                        
  design, presently, is good for existing conditions, but we                   
  have identified certain areas that need a...                                 
  (Tape 94-6 - Side 2)                                                         
                                                                               
            MR. SANTORA:... isn't good economics.                              
                                                                               
            CHAIRMAN GREEN:  You mentioned the word "costs,"                   
  and that brings a real sensitive nerve to the surface with                   
  the state.  It's indicted that for every dollar spent, the                   
  state, in fact, spends 25 percent on that.  What do you                      
  foresee as the cost?  Can you project what the cost might                    
  be, both -- and is that 25 cents on a dollar a reasonable                    
  figure?                                                                      
                                                                               
                                                                               
            MR. SANTORA:  The 25 cents, I would have to defer                  
  to Jerry.  To answer your question about costs, we just                      
  started now to get the data in regarding those concerns.                     
  The QTC audit that was done by the Bureau of Land                            
  Management, was a very narrow vertical slice, just to look                   
  at areas, and see if there was any places where there were                   
  concerns.  And there were areas of concern identified.                       
                                                                               
            The owner companies have now launched their                        
  independent audit.  That is an all-encompassing audit.  It                   
  will cover all the pump stations and all facilities at the                   
  Valdez Terminal, in addition to pipeline related facilities,                 
  such as the valving that is up and down the line, to                         
  determine what areas are of concern and need to be                           
  considered.                                                                  
                                                                               
            Phase 2 is underway.  It's not complete.  To try                   
  to answer your question would just be a guess.  And,                         
  respectfully, I won't guess.                                                 
                                                                               
            CHAIRMAN GREEN:  Is it big, or is it reasonable?                   
                                                                               
            MR. SANTORA:  Within the order of magnitude of                     
  what that facility encompassed when it was originally                        
  constructed, and where it is, we intend it to be reasonable.                 
  We intend it to be reasonable.  They're in business.  That                   
  is a business.  Any decisions you make must be made with a                   
  sense of business.  You just don't spend money without                       
  considering the consequences of that investment that you are                 
  making, and how it will effect your business.  If you don't                  
  do that, you are going to be out of business, and we do not                  
  want to see the pipeline company out of business.  It is,                    
  again, a very vital resource to this state, and its future.                  
                                                                               
            CHAIRMAN GREEN:  Well, where I was kind of going                   
  with this, and -- if the federal mandates, which -- yeah, it                 
  supplies oil to the United States -- perhaps the federal                     
  view of what might be necessary could vary with what perhaps                 
  the Pipeline Coordinator's Office might find, especially                     
  considering the fact of how vitally the throughput of the                    
  Alyeska line is to the state of Alaska.  Proportionately                     
  significantly more important to Alaska than it is to the                     
  federal government.                                                          
                                                                               
            MR. BROSSIA:  I would like to try to answer                        
  something.  My answer is a bit different than John's, on how                 
  did the situation get to where it is, in light of the                        
  original construction project.                                               
                                                                               
            And my analogy is an airplane.  And you can fly                    
  that airplane as long as you want to maintain it, and that's                 
  the way the TransAlaska Pipeline System is going to be made.                 
  And several years ago the administration made the decision                   
  that we wanted the pipeline maintained at its maximum design                 
  capacity.  So that means the airplane can be 30 years old,                   
  or it can be 50 years old, but it is maintained properly.                    
                                                                               
            Now, why did we get to where we are with the rush                  
  of construction, and the intensity of construction.  A lot                   
  of things to run an operating pipeline were never done.  The                 
  as-built drawings weren't completed.  A good operating                       
  pipeline has, essentially, what is a called an equipment                     
  list, or a Q list, if you read this report.  And a Q list is                 
  nothing more than a list of all the components that make up                  
  that system, from pumps and wires, and stacks, et cetera.                    
  And each one of those pieces, then, are entered into a                       
  predictive maintenance list.  And those predictive models,                   
  then, can tell you, compliance checks, maintenance                           
  schedules, life cycle of components and parts, and so on.                    
  And those processes were never put in place.  And as one                     
  maintains this old airplane, it becomes very important to                    
  know which pumps and which parts, et cetera, need to be                      
  maintained if you are going to keep the thing running for a                  
  long time.                                                                   
                                                                               
            So I think Alyeska -- you should ask this question                 
  of Mr. Shoaf -- I think Alyeska has bought into the idea of                  
  these management processes, equipment lists, and predictive                  
  maintenance models, and field checks, and as-builts, and so                  
  on, because they want to maintain it, too.  They have a                      
  hope.  And after the throughput declined in 1988, from 2.1,                  
  it's been going down, and they don't want it to go down, and                 
  their attitude should not have that kind of decline to it,                   
  also.  So they want to maintain it.  They want to do a good                  
  job.  And the same hope that the state has, and that's to                    
  bring future oil to market.  So we can't get there from here                 
  if we don't maintain it, is the short list.                                  
                                                                               
            As far as the 25 cents, I'm not sure it is                         
  precisely 25 percent, it might be 23 percent.  It's really a                 
  question for the Department of Law, and they regulate the                    
  tariff under, I believe, Alaska Statute 41.  But the concept                 
  is, the well head value of the oil is an average of west                     
  coast, east coast, and I'm not sure what else is in that                     
  basket that makes up the total spot price.  But the well                     
  head is a total spot, minus cleaning and hydras costs at the                 
  field, minus transportation costs.  And that deducts down to                 
  the well head value of oil.                                                  
                                                                               
            So, yes, Alaska loses money as the tariff goes up,                 
  the well head value comes down.  As well as in the taxation                  
  side of things.  And I, quite frankly, don't know the                        
  details of how, as the expenses goes up, that affects the                    
  tax.  But in theory, those two combined, come up to about a                  
  loss to the state in revenues of 23 to 25 percent.                           
                                                                               
            The ultimate decision maker in those areas, would                  
  be the Federal Energy Regulatory Commission.  Alaska                         
  disputed the additional costs several years ago for                          
  corrosion repairs.  It is my understanding that we would                     
  dispute any unreasonable costs in this operation.  So,                       
  again, I can sit here and say, "We don't want to pay, but we                 
  want it fixed."  And the ultimate judge on that will be the                  
  Federal Energy Regulatory Commission.                                        
                                                                               
            CHAIRMAN GREEN:  I think you answered a question I                 
  was going to ask, that the state has about 12.5 percent of                   
  royalty, and yet pays about 25 percent -- or, would lose 25                  
  percent.  It's through the tax portion that makes that                       
  balance?                                                                     
                                                                               
            MR. BROSSIA:  That is my understanding, and that                   
  is a Department of Revenue question.                                         
                                                                               
            CHAIRMAN GREEN:  Sure.  Okay.  You used an                         
  airplane as an example.  Now, we've got this 747 in Alaska.                  
  How does the oversight of that 747 compare with, maybe, a                    
  727 or a Piper Cub, and the other little planes that are out                 
  there?  I mean, there is pipelines all over the Lower 48.                    
  Do they have anything near this kind of scrutiny?                            
                                                                               
            MR. SANTORA:  No.  It's my understanding that the                  
  Office of Pipeline Safety, which is the main regulator of                    
  pipelines in the United States, has about 175,000 miles of                   
  liquid pipe in the Lower 48, and about 3 million miles of                    
  gas pipes.  And there is no pipeline in the United States                    
  that receives the intense scrutiny of this pipeline.  And                    
  there is no other pipeline that has developed some of the                    
  technologies that are used on this pipeline, in the way of                   
  smart pigging, and devices to look for corrosion, and so on.                 
                                                                               
                                                                               
            So the short answer is, no. There is no other                      
  pipeline that I know, that has the scrutiny.                                 
                                                                               
            CHAIRMAN GREEN:  Is that just because of the                       
  volume that's handled?                                                       
                                                                               
            MR. SANTORA:  That is the answer that has been                     
  given.  Twenty-five percent of the nation's domestic crude,                  
  as you know, flows through that pipeline, and because of it,                 
  it has a national security interest, and the government has                  
  decided that it needs more scrutiny.                                         
                                                                               
            CHAIRMAN GREEN:  If you didn't have this Joint                     
  Pipeline oversight group, what do you think the government                   
  might do?                                                                    
                                                                               
            MR. BROSSIA:   Well, first of all, there would be                  
  as many as eight, or 10, or 12 different agencies looking at                 
  the pipeline.  And one of the topics that have been                          
  addressed under the proposed Presidential Task Force, is new                 
  legislation.  So I guess, if we did not have the Joint                       
  Pipeline Office, the biggest potential would be for new                      
  federal legislation to create an oversight group.                            
                                                                               
            CHAIRMAN GREEN:  So it is definitely to our                        
  advantage -- "our," being the state's advantage, to have                     
  what we've got in place?                                                     
                                                                               
            MR. BROSSIA:  I believe so, yes.                                   
                                                                               
            John, do you want to elaborate on that?                            
                                                                               
            MR. SANTORA:  No.  I would have to agree with                      
  Jerry's assessment.                                                          
                                                                               
            One of the criticisms that, in the past, before we                 
  had the Joint Pipeline Office, that was levelled, was that                   
  we were a splintered group of various regulatory and                         
  oversight agencies, and that we did not coordinate our                       
  activities at all, therefore, we were not as effective, or,                  
  in some people's eyes, ineffective in achieving the expected                 
  oversight of the TransAlaska Pipeline System.                                
                                                                               
            Being aware of that concern, we -- Jerry and I                     
  proposed, and were successful in starting to develop the                     
  concept of a Joint Pipeline Office.  I have to suggest to                    
  you, I don't think there is another one anywhere in the                      
  United States, where the state and the federal government                    
  have been able to cooperate on a pro-active basis, with                      
  regard to a facility of the complexity and magnitude of the                  
  TransAlaska Pipeline.                                                        
                                                                               
            And I would agree with you, Mr. Chairman, I think                  
  it is in everyone's interest, that we make that type of an                   
  arrangement successful and work.                                             
            CHAIRMAN GREEN:  Let the record reflect that                       
  Representative Sanders got here about 10 minutes to 6:00, or                 
  5:00, or something like that.                                                
                                                                               
            REPRESENTATIVE SANDERS:  Ten minutes to 5:00 is                    
  better.                                                                      
                                                                               
            CHAIRMAN GREEN:  Sorry.  Yes.                                      
                                                                               
            REPRESENTATIVE SANDERS:  No, it was about ten                      
  minutes to 6:00.                                                             
                                                                               
            UNIDENTIFIED MALE:  Is it 10 minutes to 6:00 or                    
  5:00?                                                                        
                                                                               
            CHAIRMAN GREEN:  Ten or five minutes to 6:00 is                    
  what I meant.                                                                
                                                                               
            If there is a difference of opinion on                             
  expenditures, as you had indicated, Jerry, there could be,                   
  is there an authoritative structure within the oversight                     
  committee?                                                                   
                                                                               
            MR. BROSSIA:  What we hope to do -- right now John                 
  and I are the same size dog.  He takes as big a bite out of                  
  me as I do out of him.  So, to resolve that issue, we                        
  created this memorandum of understanding with the state and                  
  federal government, and it would be elevated up to cabinet                   
  level on the state side, and a number of the federal heads                   
  on the federal side, and they would argue it out.                            
                                                                               
            I don't foresee that happening, quite frankly,                     
  because, we have a lot of arguments.  I wouldn't say we                      
  didn't, but usually we have been able to work everything out                 
  in the last four years.  And sometimes it takes a while.                     
  But we have reached an agreement in the past with this                       
  process on one oil spill program, one corrosion program.                     
  Those are two very big programs.                                             
                                                                               
            So I would anticipate amicable agreement on                        
  corrective actions.  But in the event that we can't, we have                 
  set an elevation process up.                                                 
                                                                               
            MR. SANTORA:  I would like to add to Jerry's view,                 
  that with the memorandum agreement, and the fact that we                     
  have these policy level people who have signed on that                       
  agreement, which is an intent to work together cooperatively                 
  and pro-actively.  You would not see a unilateral decision                   
  made.  There would be a vehicle, and there is a vehicle for                  
  discussion.  And I, personally, would urge your strong                       
  support of the continuation of that agreement, and a                         
  participation of those policy level people in that                           
  agreement.  I think it's to everyone's interest, because it                  
  is the first time for that office, we had that kind of                       
  vehicle where we could bring those folks together and we can                 
  discuss areas of concern, and there will be no unilateral                    
  decisions made.  They must be discussed.   I think it is to                  
  everyone's advantage to do that.                                             
                                                                               
            CHAIRMAN GREEN:  Now, at the Dingell hearings back                 
  in Washington, the owners -- at least three of the owners --                 
  the bulk of the owners, in other words -- the majority                       
  ownership -- that's better -- was very cooperative and                       
  indicated that they were going to do everything reasonably                   
  in their power to cooperate.  Have you found that with your                  
  oversight, that you sense that same feeling of cooperation                   
  of the owners?                                                               
                                                                               
            MR. BROSSIA:  Yes.                                                 
                                                                               
            MR. SANTORA:  I would support that.                                
                                                                               
            CHAIRMAN GREEN:  Now there were some allegations                   
  that there was corrosion in the pipeline, and there was, you                 
  know, the news media about the stress situations in Atigun                   
  Pass.  Is it your feeling that those issues are being --                     
  because you indicated there wasn't any.  The pipeline is                     
  safe.  There isn't any immediate danger.  Those issues, to                   
  your satisfaction, are being handled?                                        
                                                                               
                                                                               
            MR. SANTORA:  As you, I think, are aware, eight                    
  and a half miles of the pipe was replaced at Atigun Pass.                    
  Alyeska has an annual program to inspect the pipe in several                 
  different ways, for corrosion.  We are a part of that                        
  program, and we believe that we have a very good                             
  understanding of where corrosion is on the pipe, how severe                  
  it is, and we're moving towards remedial repairs, in a very                  
  cooperative way, with Alyeska right now.  That is the entire                 
  office, both the regulators within the office, as well as                    
  the right-of-way agency.  So I believe we are working                        
  cooperatively to resolve corrosion.                                          
                                                                               
            Now, that's not to say that there is not corrosion                 
  of the pipe.  But, at this point in time, we don't know of                   
  any corrosion that presents a safety related problem.                        
                                                                               
            CHAIRMAN GREEN:  And the last question I would                     
  have is, sometime toward the end of last year -- maybe a                     
  little earlier than that, even, but certainly toward the end                 
  of last year, there were some problems developed with the                    
  remote sensing valves, the safety valves.  And it appeared,                  
  in some cases, that that was not just a natural phenomena.                   
  I haven't heard anything more.  Was that just a                              
  happenstance?  Do you feel there was, maybe, disgruntled                     
  employee, or whatever?  That's not a concern safety wise?                    
                                                                               
                                                                               
            MR. BROSSIA:  It is a safety issue, and there are                  
  about 160 valves on the pipeline.  About a third of those                    
  are what you refer to as "remote gate valves," and they are                  
  essentially operable out of the Valdez Marine Terminal.                      
                                                                               
            The reason that the valves exist, of course, is                    
  they have a systematic and orderly shutdown of the pipe.  If                 
  one were just to cut the flow off, you could create a                        
  hammer, like, you get in your water faucet, and you could                    
  literally blow the pipe out of the water and rupture it.  So                 
  it's important to essentially control the orderly shutdown                   
  of the pipeline.                                                             
                                                                               
            Several things have happened:  Alyeska did a trend                 
  analysis.  They had several of those motors and valving                      
  regulating devices that did age, needed maintenance, needed                  
  repairs.  And I think they found some 30 or 40 valves that                   
  needed upgrades, and they worked on that.                                    
                                                                               
            Secondly, they also put a new gearing device into                  
  those motors to close them slowly, so that they can't shut                   
  down in four minutes.  They are now going to close in eight.                 
  So that they are taking that precaution.                                     
                                                                               
            And, thirdly, they are going to renovate the whole                 
  communication control system.  I can't really talk to the                    
  details of that, but I know that an RFP will be going out in                 
  the near future to upgrade the telecommunications system.                    
                                                                               
            CHAIRMAN GREEN:  One other question I might have                   
  for Mr. Santora.  Recently the BLM director has left his                     
  office.  What is the plan there, as far as his replacement,                  
  and his working with this whole process?                                     
                                                                               
            MR. SANTORA:  A gentleman by the name of Mr. Mike                  
  Donbeck (ph) has been designated by the secretary, to be the                 
  acting director.  It is my guess that we will not see a                      
  permanent replacement until sometime, probably, the end of                   
  August or first of September.  It's an appointed position,                   
  appointed by the president, with concurrence of the senate.                  
  And it looks like now, it probably won't happen until late                   
  in the summer, but you can always be fooled.                                 
                                                                               
            CHAIRMAN GREEN:  Are there any other questions                     
  about the -- yes?                                                            
                                                                               
            REPRESENTATIVE GARY DAVIS:  Mr. Chairman, thank                    
  you.                                                                         
                                                                               
            Every project that is built, and probably every                    
  piece of machinery that is built, has a somewhat life                        
  expectancy and a maintenance plan to it.  Is all that still                  
  in place, or is the life expectancy of the pipeline,                         
  quantities of flow, major maintenance problems that were                     
  assumed to happen.  Is there any major hits anyplace?  Of                    
  course, if there is, hopefully, more opportunity or more oil                 
  finds on the Slope, to maybe double the expected life of the                 
  pipeline or the facility, if that should happen.  Is that                    
  part of any plan now to, how to accept that and prepare for                  
  it?  See how optimistic I am.                                                
                                                                               
            CHAIRMAN GREEN:  Good man.                                         
                                                                               
                                                                               
            MR. SANTORA:  I think you are actually -- I heard                  
  at least three or four questions there.  Starting with the                   
  last one first.  I think that Alyeska is, and the owner                      
  companies are thinking about a future plan for TAPS.  I                      
  can't tell you what that future plan is.  I can be hopeful,                  
  as you are, of what it might be, but it's something you                      
  maybe more appropriately, should ask Mr. Shoaf.                              
                                                                               
            But as far as, are there any hits, I think, from                   
  the State's perspective, the only real hit we thought would                  
  be under better control, would be the corrosion.                             
                                                                               
            When the pipeline was originally built, we thought                 
  that it had an adequate coating, and then they put a tape on                 
  it, and then they put a cathodic protection.  We thought                     
  that would be good enough.                                                   
                                                                               
            So if there was any hit or surprise, it came in                    
  the area of corrosion, which there has been a fairly                         
  significant amount of money, probably 400 or 500 million had                 
  been spent on that in the last few years, and that's a                       
  number out of the newspaper, so I'm not sure how accurate it                 
  is.                                                                          
                                                                               
            It has been a substantial number, and there is                     
  still a fair amount of work to be done over the next five                    
  years or so.  But I think most of the corrosion is now under                 
  control, but that's the main hit.                                            
                                                                               
            As far as the future plan, you might want to ask                   
  Mr. Shoaf.                                                                   
                                                                               
            CHAIRMAN GREEN:  Please join us.                                   
                                                                               
            MR. SHOAF:  My name is Rob Shoaf.  I work for                      
  Alyeska in Anchorage.  I've been working recently on some of                 
  the audit processes that Jerry and John have described to                    
  you.  Just to answer that one question.                                      
                                                                               
            As Jerry said earlier, we are trying to maintain                   
  the system, so it could transport all the available oil.                     
  And as John said, we would like to maintain the system, so                   
  that it is not an issue in decisions about what oil is                       
  available to transport.                                                      
                                                                               
            What that means in practical terms is, we do have                  
  programs for maintenance of the pipeline itself, and of the                  
  systems that move the oil through the pipeline.  They are                    
  designed to provide a high degree of reliability.  But for                   
  the current levels of throughput, which are around 1.7                       
  million barrels a day, but also with the maximum established                 
  capacity of the system, which was 2.1 million barrels per                    
  day.                                                                         
                                                                               
            Obviously, in the future we have to continue to                    
  look at that, and we talked to the state about it, but at                    
  the moment, that's what we are doing.                                        
                                                                               
            CHAIRMAN GREEN:  I know with a car, if you got                     
  this new car and it's pretty resistant to any kind of                        
  corrosion, then you begin to get little pits.  It seems like                 
  the corrosion, then, accentuates the -- accelerates,                         
  perhaps, is a better word.                                                   
                                                                               
            You feel that you've got the corrosion in the                      
  pipeline under control.  Is this through a treatment.  Is it                 
  cathodic protection, or corrosion inhibitors that go in the                  
  oil, or...                                                                   
                                                                               
            MR. SHOAF:  Well, I'll start and then Jerry can                    
  supplement it, from his perspective.  But we really approach                 
  the problem from two perspectives.  The corrosion on the                     
  mainline pipe itself is external.  We have coatings on the                   
  pipe where it is below ground, to try to minimize the                        
  potential fork erosion, and that is supplemented by a                        
  cathodic protection system, which is intended to avoid the                   
  processes of corrosion itself.                                               
                                                                               
            We have found that some areas, like Atigun Pass,                   
  that the cathodic protection system has not been sufficient,                 
  given the circumstances, to prevent corrosion to the degree                  
  where we needed to react to it.  And there, as Jerry said,                   
  we replaced eight and a half miles of pipe.                                  
            In other areas we are in discussion with the joint                 
  pipeline office, and particularly the United States                          
  Department of Transportation Office of Pipeline Safety,                      
  about the cathodic protection, and engineering challenges                    
  that we face in trying to utilize the cathodic protection                    
  system, to eliminate or mitigate corrosion of the pipeline.                  
  And we are involved in a very detailed technical review of                   
  those types of issues.                                                       
                                                                               
            On the other side, we -- as Jerry explained, we                    
  run what we call a "smart pig" through the pipeline.  And                    
  what that does is use -- we have two different pigs that use                 
  different technologies, to basically look at the wall                        
  thickness and measure where there is a reduction of wall                     
  thickness, and determine whether that is indicative of                       
  corrosion or not.                                                            
                                                                               
            The corrosion that is revealed through those                       
  inspections, is evaluated, based on the strength of the                      
  steel and the necessity for, still thickness, at various                     
  points of the pipeline, to allow the operating pressures                     
  that we have to have in the pipeline, to operate it at its                   
  capacity.                                                                    
                                                                               
            And it's really that evaluation -- the corrosion                   
  against the operative pressures that we want that helps us                   
  determine where we have to go in and make some sort of                       
  repair.                                                                      
                                                                               
            CHAIRMAN GREEN:  And so far the corrosion has been                 
  from the outside in, rather than from the inside out?                        
                                                                               
            MR. SHOAF:  That's correct.                                        
                                                                               
            CHAIRMAN GREEN:  Any other questions?                              
                                                                               
            (No audible response.)                                             
                                                                               
            CHAIRMAN GREEN:  Well, thank you very much.  We                    
  really appreciate this update, and it's good to know that                    
  you are in good hands.                                                       
                                                                               
            MR. BROSSIA:  Thank you.                                           
                                                                               
            CHAIRMAN GREEN:  Thank you, very much.                             
                                                                               
            MR. SANTORA:  Thank you, Mr. Chairman.                             
                                                                               
            CHAIRMAN GREEN:  Thank you.                                        
                                                                               
                            ***END***                                          

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