Legislature(2005 - 2006)CAPITOL 124
04/28/2005 05:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HCR8 | |
| Alaska Oil and Gas Conservation Commission | |
| HB254 | |
| HB286 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HCR 8 | TELECONFERENCED | |
| *+ | HB 286 | TELECONFERENCED | |
| += | HB 234 | TELECONFERENCED | |
| *+ | HB 254 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 28, 2005
5:12 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Nancy Dahlstrom
Representative Lesil McGuire
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Berta Gardner
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 8
Encouraging the Regulatory Commission of Alaska expeditiously to
complete its investigation of the Cook Inlet Gas Gathering
System.
- HEARD AND HELD
CONFIRMATION HEARING(S)
Alaska Oil and Gas Conservation Commission
Cathy P. Foerster - Anchorage
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 254
"An Act directing the Alaska Natural Gas Development Authority
to use money appropriated from the Railbelt energy fund and from
other sources for preliminary engineering and related work for
the construction of pipeline facilities to transport Alaska
North Slope natural gas to the Southcentral Alaska gas
distribution grid, and amending the definition of 'project' as
applied to the work of the Alaska Natural Gas Development
Authority; and providing for an effective date."
- MOVED HB 254 OUT OF COMMITTEE
HOUSE BILL NO. 286
"An Act amending the manner of determining the royalty received
by the state on gas production by directing the commissioner of
natural resources to accept, under certain circumstances, the
transfer price of the gas if established by transfer price order
of the Regulatory Commission of Alaska; and providing for an
effective date."
- MOVED HB 286 OUT OF COMMITTEE
HOUSE BILL NO. 234
"An Act relating to the due date for the payment of oil and gas
royalty and net profit shares and amending the rate of interest
payable on royalties or net profit shares."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HCR 8
SHORT TITLE: COOK INLET GAS GATHERING SYSTEM COMPLAINT
SPONSOR(S): OIL & GAS
04/07/05 (H) READ THE FIRST TIME - REFERRALS
04/07/05 (H) O&G
04/14/05 (H) O&G AT 5:00 PM CAPITOL 124
04/14/05 (H) -- Meeting Postponed to 4/21/05 --
04/21/05 (H) O&G AT 5:00 PM CAPITOL 124
04/21/05 (H) -- Meeting Postponed to 4/26/05 --
04/26/05 (H) O&G AT 5:00 PM CAPITOL 124
04/26/05 (H) -- Meeting Postponed to 4/28/05 --
04/28/05 (H) O&G AT 5:00 PM CAPITOL 124
BILL: HB 254
SHORT TITLE: NAT. GAS SPUR LINE AND DISTRIBUTION GRID
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG
04/05/05 (H) READ THE FIRST TIME - REFERRALS
04/05/05 (H) O&G, RES, FIN
04/21/05 (H) O&G AT 5:00 PM CAPITOL 124
04/21/05 (H) -- Meeting Postponed to 4/26/05 --
04/26/05 (H) O&G AT 5:00 PM CAPITOL 124
04/26/05 (H) -- Meeting Postponed to 4/28/05 --
04/28/05 (H) O&G AT 5:00 PM CAPITOL 124
BILL: HB 286
SHORT TITLE: VALUE OF ROYALTY ON GAS PRODUCTION
SPONSOR(S): REPRESENTATIVE(S) SAMUELS
04/26/05 (H) READ THE FIRST TIME - REFERRALS
04/26/05 (H) O&G, L&C
04/28/05 (H) O&G AT 5:00 PM CAPITOL 124
WITNESS REGISTER
KATE GIARD, Chair
Commissioner
Regulatory Commission of Alaska (RCA)
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of
HCR 8; responded to questions during discussion of HB 286.
CATHY P. FOERSTER, Appointee
to the Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska Oil
and Gas Conservation Commission (AOGCC).
JERRY McCUTCHEON
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns during discussion of HB
254.
WARREN KEOGH
Chickaloon, Alaska
POSITION STATEMENT: Expressed concerns during discussion of HB
254.
HAROLD HEINZE, Chief Executive Officer
Alaska Natural Gas Development Authority (ANGDA)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 254.
PAUL FUHS, Volunteer Lobbyist
for Backbone 2
Anchorage, Alaska
POSITION STATEMENT: Provided comments and responded to
questions during discussion of HB 254.
SARA NIELSEN, Staff
to Representative Ralph Samuels
Alaska State Legislature
POSITION STATEMENT: Presented HB 286 on behalf of
Representative Samuels, sponsor.
JIM POSEY, General Manager
Anchorage Municipal Light and Power (ML&P)
Anchorage, Alaska
POSITION STATEMENT: During discussion of HB 286, provided
comments and responded to a question.
MARK MYERS, Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 286, provided
comments, and responded to questions.
MARTIN T. SCHULTZ, Commercial Analyst
Audit Section
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
POSITION STATEMENT: Responded to questions during discussion of
HB 286.
ACTION NARRATIVE
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 5:12:37 PM. Representatives Rokeberg,
Kohring, Samuels, Kerttula, and Gardner were present at the call
to order. Representatives Dahlstrom and McGuire arrived as the
meeting was in progress.
HCR 8 - COOK INLET GAS GATHERING SYSTEM COMPLAINT
CHAIR KOHRING [announced that the first order of business would
be] HOUSE CONCURRENT RESOLUTION NO. 8, Encouraging the
Regulatory Commission of Alaska expeditiously to complete its
investigation of the Cook Inlet Gas Gathering System.
CHAIR KOHRING noted that the Regulatory Commission of Alaska
(RCA) has developed a preliminary decision regarding the Cook
Inlet Gas Gathering System (CIGGS), thus rendering HCR 8
unnecessary. He asked Ms. Giard to comment on the preliminary
decision.
5:14:01 PM
KATE GIARD, Chair, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community, & Economic Development
(DCCED), relayed that in response to a complaint filed by Agrium
U.S., Inc., in October 2004, the RCA initiated a process by
which to determine whether CIGGS was in violation of AS 42.05 -
the Alaska Public Utilities Regulatory Act - and AS 42.06 - the
Pipeline Act. The RCA, in late March of 2005, determined that
Union Oil Company of California (Unocal) and Marathon Oil
Company - as owners of CIGGS - were public utilities and thus
qualified to be regulated under AS 42.05, and then immediately
exempted those two companies from RCA regulation for the
remainder of the pleading cycle. Ms. Giard recommended that
members read the RCA's order on this issue, particularly pages
18-21, and noted that the RCA has also issued an order that
schedules a prehearing conference for May 4, 2005, at which the
issues of settlement procedures and consolidating the pleading
schedule will be discussed.
[HCR 8 was held over.]
^CONFIRMATION HEARINGS(S)
^Alaska Oil and Gas Conservation Commission
5:17:07 PM
CHAIR KOHRING announced that the committee would next consider
the appointment of Cathy P. Foerster to the Alaska Oil and Gas
Conservation Commission (AOGCC).
5:17:38 PM
CATHY P. FOERSTER, Appointee to the Alaska Oil and Gas
Conservation Council (AOGCC), stated:
My training and experience as a petroleum engineer
make this position in the Alaska Oil and Gas
Conservation Commission [AOGCC] seem to be the ideal
place for me to serve the state of Alaska. I've had a
variety of engineering assignments, from reservoir
development to facility design. I've also had
opportunities to supervise and manage broad groups of
people, from small, highly technical groups of
engineers and scientists to large operations groups
[consisting] of ... skilled and unskilled laborers.
Most of my early experience was "onshore Texas" and
"offshore Louisiana," but for the last 13 years I have
worked the North Slope of Alaska, from well operations
at Prudhoe Bay to new field developments on the
western North Slope. I'm particularly proud of a few
of my Alaska work experiences and would like to share
them with you.
5:18:53 PM
MS. FOERSTER continued:
When I first came to Alaska I was operations
superintendent for the Prudhoe Bay wells group during
the time when that group helped to pioneer coil tubing
drilling in Alaska. Now, I was not one of the
brilliant, technical people doing this groundbreaking
work; I was merely an enabler for them. Later, I had
the privilege of leading the strategic business-review
team that initiated the West Sak development that
Alaska is enjoying today. And, more recently, I was
part of the consulting team that prepared an analysis
for the Department of Natural Resources [DNR] on how
to assist new operators in acquiring access to North
Slope facilities.
Throughout my career I've been blessed with wonderful
opportunities to learn and contribute at the same
time, and I see this appointment as another such
opportunity. I'm especially pleased and honored to
have the opportunity to serve the people of Alaska as
part of such a well-respected commission and in
concert with such intelligent, honest, ethical, and
hard working gentlemen as my co-commissioners. ...
5:20:03 PM
CHAIR KOHRING asked Ms. Foerster what she sees as being her role
at the AOGCC.
MS. FOERSTER replied:
Primarily my role will be to serve the people of
Alaska in the four prongs of our mission statement:
prevent waste of hydrocarbons, encourage the operators
to maximize recovery of hydrocarbons, to protect the
groundwater, and to protect owners' correlative
rights. It's been a while since there's been a
reservoir engineer in the engineering commissioner
position, so I see that I'll have the opportunity to
bring a reservoir engineering perspective to the post,
and I think this is a very important thing at a time
when one of our biggest issues is going to be ...
setting a rate for gas withdrawal when we get a gas
pipeline and decide to blow down the gas cap at
Prudhoe Bay. That's really a reservoir engineering
set of issues.
5:21:13 PM
CHAIR KOHRING commented that he saw the role as a steward of the
state's resources, and said: "You are just one of three people
who have an incredibly important position, to make sure that
we're getting our monetary share ..., our royalties and so
forth, and that everything's being reported correctly and
properly. Do you foresee any challenges with that?"
MS. FOERSTER responded that she considers the position to be
challenging, adding, "I think I'm qualified to do the job; I
think I have the honesty and the ethics to do it properly, and
the experience and the intelligence to do it right."
CHAIR KOHRING noted that Ms. Foerster's resume is very
substantial, and opined that she seems eminently qualified for
the position.
5:22:13 PM
REPRESENTATIVE DAHLSTROM made a motion to advance from committee
the nomination of Cathy P. Foerster as appointee to the Alaska
Oil and Gas Conservation Commission. There being no objection,
the confirmation was advanced from the House Special Committee
on Oil and Gas.
5:22:33 PM
REPRESENTATIVE ROKEBERG reminded members that signing the
reports regarding appointments to boards and commissions in no
way reflects individual members' approval or disapproval of the
appointees, and that the nominations are merely forwarded to the
full legislature for confirmation or rejection.
CHAIR KOHRING concurred.
HB 254 - NAT. GAS SPUR LINE AND DISTRIBUTION GRID
[Contains mention of HB 253.]
5:23:22 PM
CHAIR KOHRING announced that the next order of business would be
HOUSE BILL NO. 254, "An Act directing the Alaska Natural Gas
Development Authority to use money appropriated from the
Railbelt energy fund and from other sources for preliminary
engineering and related work for the construction of pipeline
facilities to transport Alaska North Slope natural gas to the
Southcentral Alaska gas distribution grid, and amending the
definition of 'project' as applied to the work of the Alaska
Natural Gas Development Authority; and providing for an
effective date."
REPRESENTATIVE ROKEBERG, speaking as the sponsor, presented HB
254 to the committee. He explained:
This legislation creates the statutory authority for
the Alaska Natural Gas Development Authority [ANGDA]
to use money appropriated from the Railbelt energy
fund to initiate and continue the preliminary
engineering design and construction of a gas
transmission pipeline, or spur line, for delivering
gas from the principal North Slope natural gas
pipeline to [the] Southcentral Alaska gas grid system.
What this bill does is somewhat different: it
clarifies the project definition and expands the ANGDA
scope of work to include a spur line route, adjacent
to the Parks Highway, to "Southcentral" from an
appropriate northern point of the main gas line. So
if we build the main gas line, we could look elsewhere
rather than Glennallen. It also ... provides that
another route, a direct or so-called "bullet line,"
all the way from Prudhoe Bay to Southcentral, could be
undertaken and looked at by the authority.
It also keeps and reiterates the spur line from
Glennallen to Southcentral, and the primary pipeline
from Prudhoe Bay to Valdez. ... So it doesn't diminish
any of its authority; it actually just expands it in
two ways: to clarify that they can look at the so-
called "Parks Highway route" as a spur, and then a
straight bullet [line]. ...
5:25:21 PM
REPRESENTATIVE ROKEBERG continued:
Additionally ... I would point out that in Section 2,
... subsection (c) on page 3, ... there are provisions
here that [specify] the authority shall include
provisions to implement ... "recovery of costs"
methodologies for the expenditure of the fund that's
included in the companion bill [HB 253], of some $8
million, from the private sector, and also, in
subsection (d) on page 3, will agree to cooperate with
federal grantees.
When [we] worked on this bill, it came to my attention
... [that] a consortium of the Cook Inlet Tribal
Council and a subsidiary of ENSTAR Natural Gas Company
have been granted $3 million to work on the Parks
Highway route that a lot of people weren't really
aware of. So what [subsection] (d) does is recognize
that there may be some activity on that particular
spur line, and with [the] ANGDA now working and
looking at permitting the Glennallen/Mat-Su Valley gas
distribution hook-up, that there's already work
underway. So this language is intended to have
cooperation so there can be trading of material, and
we don't want to duplicate these precious dollars for
planning. ...
REPRESENTATIVE ROKEBERG concluded:
The main difference here is that [the bill] ...
recognizes that we ought to start looking at a bullet
line in terms of our long-range future and this other
routing, so we don't get locked into just one system.
So if we don't get a line that goes all the way to
Valdez, we have alternatives, albeit there's certainly
been conversations about, even if the highway route
were the primary transportation route, [the fact that]
you might want to come through Glennallen, given
costs. But until we do this type of work, we don't
know. ...
REPRESENTATIVE ROKEBERG asked for the committee's support [of
the legislation].
5:27:33 PM
REPRESENTATIVE GARDNER asked whether the fund that Chugach
Electric [Association] has been talking about using for other
projects is the Railbelt energy fund.
REPRESENTATIVE ROKEBERG replied:
There are, right now, two fund sources. One is the
so-called Railbelt energy fund: it's the balance
that's worth some $28 million, [and] it's the refunded
portion of [an] electrical gridline that was planned
to go from Glennallen into the Sutton area, I believe,
and that didn't work out, and [so] the money was
refunded or reappropriated back into the Railbelt
energy fund.
There's additionally another pot of money, if you
will, that's under [the Alaska Industrial Development
and Export Authority (AIDEA)] of $40 million, which
was the interest earned on monies that [were]
appropriated through the legislature and [the] AIDEA
for what's called the new Southern Intertie route,
which was a direct electrical transmission line
between Anchorage and the Kenai peninsula. ... [It]
was ultimately decided that that project would not go
forward. So there is approximately $68 million, if
you will, available in designated money sources.
What I did to avoid the "intermural" utility wars
between competing interests was [to] just focus the
thrusts of my bill and its companion bill on the $28
million. The companion appropriation bill provides $8
million for the gas line spur study, and a cumulative
$20 million to the City of Seward, Homer Electric
Association, and Chugach Electric [Association] to
upgrade the old, existing southern intertie and
increase the repair and maintenance on that line.
I believe there is significant deferred maintenance
when they were talking about doing this other route,
and there is some controversy about whether or not
they should do that. My opinion is: I think it's
appropriate for the legislature to appropriate this
money because it removes that cost from the
ratepayer's base.
5:30:06 PM
REPRESENTATIVE ROKEBERG added:
The utility could go out and bond this money, or
borrow it, but then they can turn around and increase
the costs to our constituents. This money has been
sitting here for a long time. We've been talking
about the northern intertie. Fairbanks got their
money. I mean, the Railbelt in the southern section
really hasn't received good benefit for the balance of
that money, and I'd like to see those monies used for
that purpose ... [and] spend them before somebody else
spends them. ...
5:31:07 PM
JERRY McCUTCHEON stated:
Just because you see lots of activity on the gas line,
you should not assume it's for real, or that they are
actually trying to secure gas or a gas line. They
make money churning; the cost of churning plus profit
is then stuck in the gas consumer's bill as if it were
real. It is only the illusion of the pursuit of [the]
gas and a gas line that counts. For example, a recent
full page ad by the Alaska Gas Port Authority offering
to purchase four billion cubic feet of gas a day ...
[was paid for by] a Lower 48 gas company, [Sempra
Energy], who will stick their gas customers with the
costs - (indisc.) all the costs they can plus profit.
Sempra [Energy] will probably charge off $25 million
to $50 million before they are done. It is the
illusion and your gullibility that counts, not
reality. The oil companies are doing the same thing
to their customers - it's a game they play.
You, as a taxpayer, are being stuck with the state
costs of this charade by [Governor] Murkowski. Back
in the late '70s and early "80s, the gas promoters
stuck the ... [Lower] 48 gas bill payers with over a
billion dollars in costs. That's so much for the ads.
Mr. Chairman, HB 254, whatever reason there was for
[the] ANGDA, [the] ANGDA has been eclipsed when the
[Alaska Gas] Port Authority acquired the rights to
[Yukon Pacific Corporation's] right-of-way permits.
And, more importantly, when [ENSTAR Natural Gas
Company] went public with ENSTAR's gas line studies,
the operation of [the] ANGDA is at best been a study
in sophistry. Mr. Heinze has gone around the state
espousing wildly optimistic [sophistic] statements
that [the] public is desperate to hear and have been
led to believe are possible.
There is no longer a reason to fund [the] ANGDA, for
there is nothing [the] ANGDA can do that private
enterprise could not do better, at substantially less
cost, but also more realistically - private enterprise
without (indisc.) state funds. Every route that [the]
ANGDA may wish to study, ENSTAR has already studied or
is studying. ENSTAR has most of the answers; [the]
ANGDA has confusion, sophistry, and waste.
5:33:58 PM
MR. McCUTCHEON continued:
A most important thing is, ENSTAR cannot rely on
anything [the] ANGDA does; it has to do it for itself.
It's got its whole system at stake. I've listened to
Mr. Heinze peddle his sophistry for hours at [the]
ANGDA's board meetings, for meeting after meeting.
There is nothing that [the] ANGDA can do that ENSTAR
can't do ... [and do] it without state funds. [The]
ANGDA is just duplicating ENSTAR; ENSTAR must do it's
own studies, ENSTAR's whole investment is in Alaska -
it's at stake - and ENSTAR cannot and will not rely on
somebody else's studies, least of all [the] ANGDA's.
It is time to let [the] ANGDA die in committee. If
[Governor] Murkowski wants to fund [the] ANGDA out of
his budget, that is his call, but not a wise one - it
is not one the legislature should aid and abet. Thank
you, Mr. Chairman, ... for allowing the public to
testify.
5:35:13 PM
WARREN KEOGH said:
I would first voice my reservations with HB 254,
[which] ... further defines the ANGDA project, but
especially to the use of money appropriated from the
Railbelt energy fund, particularly the $8 million
earmarked for [the] ANGDA in the companion bill, HB
253. And my concerns come about in part because it's
my feeling that [the] ANGDA has moved too quickly in
its preliminary planning work for the so-called spur
line from Glennallen to Palmer. And [the] ANGDA has
rather rapidly expended, I think, ... about [$300,000]
to $500,000 for preliminary engineering,
environmental, financial, public outreach, and other
efforts in the past five or six months. And things
have moved a bit too quickly, in my estimation, and,
as a result, some mistakes have been made in the
pipeline routing and also in the ANGDA right-of-way
application to [the] DNR that was submitted ... just a
couple of weeks ago.
And I'll just give three quick examples. ... The first
would be an issue of public process. The ANGDA board
meeting [on] April 4 was not properly noticed - public
notice appeared in an obscure Department of Revenue
web page on late Friday morning for a 10 a.m. ANGDA
meeting the following Monday, [and] public notices did
not appear in print in the newspapers 'til Monday
morning of the meeting day. Another example of public
outreach: this is about a 150-mile long pipeline, the
terminus of which goes through numerous parcels of
private property in the City of Palmer.
Those of us in Chickaloon ... have recently become
aware of the pipeline routed through our community; I
took it upon myself to call numerous people - private
homeowners and property owners in [the] Palmer area.
The pipeline, in case you're not aware, is routed to
end in the vicinity of a gravel pit where the Trunk
Highway hits the Parks Highway. So I called some
folks along the Trunk "road" and places further up the
line - approximately a dozen this past Sunday
afternoon ... - and not a single person, with the
possible exception of one person, was ... aware that
the pipeline was planned or routed through their
private property. And I suggest, with a project of
this magnitude, where an application has already been
submitted, that people should be better informed.
5:38:25 PM
MR. KEOGH continued:
One last example ...: in my community of Chickaloon
we were not apprised, that I am aware of, as a
community, of this pipeline being routed through our
property along a proposed route until rather late in
the stage, when the route has already been determined
without our input or advice. As a result of that,
last night the Chickaloon community council, after
approximately 20 or more citizens have worked on a
resolution for the past 2 weeks, we passed a
resolution, which the community council will deliver
to [the] ANGDA here in the next couple of days. ...
Basically it's a resolution stating, generally, that
we support the efforts of [the] ANGDA to bring North
Slope gas to Southcentral Alaska, but request further
study of other routes and it's impacts. And it's
about a two-page statement, but essentially ... our
community respectfully requests that [the] ANGDA
suspend their permit and right-of-way acquisition
process until all routes from the Alaska North Slope
to Southcentral have been thoroughly assessed for
their suitability and their economic, social, and
environmental impacts, and that the public process for
this project include proper notice and sufficient time
for meaningful comments from the Chickaloon community
council.
5:39:49 PM
MR. KEOGH asked that if the ANGDA is to receive further funding,
that the ANGDA be held accountable for "what they do and what
they don't do." He commented, "This testimony comes about as a
result of what, in my view, is the rather hurried efforts of
[the] ANGDA to acquire the pipeline right-of-way.
5:40:30 PM
REPRESENTATIVE ROKEBERG commented that the bill should be
consistent with the Chickaloon community council's goal in that
it looks at other routes.
5:41:00 PM
CHAIR KOHRING asked the representative from the ANGDA to give
consideration to Mr. Keogh's concerns.
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority (ANGDA), Department of Revenue (DOR),
testified in support of HB 254. He went on to say:
There are probably just two major points I'd like to
make about the bill, and then I would like a little
bit of chance, maybe, to respond to the previous
testimony. Two things. One, this bill is the bill
that will facilitate the looking at what I consider to
be a more direct route from the North Slope to the
Cook Inlet area. Right now, our funding and our
efforts ... have been looked at from the point of view
of tying into either a highway pipeline going down
through Canada, or a pipeline following a route to
Valdez, Alaska, along the Trans-Alaska Pipeline System
[TAPS]. And that's why we've focused on the
Glennallen to Palmer connection, because it was the
missing link in terms of different ways that one might
get gas to Cook Inlet. But it was done very clearly
with the intention of fitting in with those projects
on it.
Representative Rokeberg's bill represents an
opportunity to expand that horizon; HB 254 very
clearly is directed towards the other parts of those
efforts to find a way down. Currently we are aware
that there is a proposal involving Cook Inlet Tribal
Council, [ENSTAR Natural Gas Company], and some other
parties, that is looking for federal funding to study
that route. There have been some previous studies,
but in terms of ... the spur line, we would believe
that this would provide the kind of grubstake we would
need to really look seriously at that route and bring
it to a level of design and engineering and permitting
and other things that would make it real.
5:43:28 PM
MR. HEINZE went on to say:
The other point ... I'd really wanted to make about
the bill is that we view this funding as a grubstake.
We believe that the Railbelt energy fund provides that
opportunity to get the project going. The project
would be financed of itself at a much larger sum and,
once it was financed, we would expect that it would
generate revenues sufficient to pay back the fund very
quickly. And that would be [the] ANGDA's intent, ...
to pay this money back. We look at this as a loan, a
grubstake, whatever you want to call it, for us.
[And] ... just in brief comment as to the previous
testimony, on the record, [the] ANGDA started,
seriously, both public notice and contracting
processes related to this spur line last September.
We were very open about it; as a matter of fact, we
ran some ads in the "Frontiersman" and other local
publications - full-page color ads indicating what we
were doing and why we were doing it in terms of
meeting the energy needs of Southcentral. At that
time, then, ... one of our first efforts, as we
started our contractors around the first of this year,
was to actually have an individual go out and do a
certain amount of public outreach. At that time, the
funds and the time were limited, but we did contact a
few people in the Chickaloon area.
5:44:48 PM
MR. HEINZE continued:
Since then, I personally have gone up there and I have
spent time in both Sutton and Chickaloon. We had some
good meetings at the community council, received some
very good suggestions, and we've actually been able to
incorporate a number of those suggestions into the
application. The exact routing in the Chickaloon area
is something that we will study further, just as [in]
several other places along the line, ... as we go
through it.
The application, right now, on the table, is for state
land only. It has nothing to do with the private
land. And, in particular in the Palmer area, we've
felt that we would probably be using existing utility
right-of-ways that have been granted there by both ...
the state and the borough. So again, we've not
addressed, in any great detail - and the funding was
not sufficient at this point to address in any great
detail - what we would do with the private
contractors. There [are] ... additional funds in the
supplemental budget to allow us to do those kind of
efforts, and we look forward to, hopefully, that being
approved, and moving on.
5:46:27 PM
REPRESENTATIVE ROKEBERG referred to the supplemental budget
vetoed by the governor, and asked whether the money earmarked
for the ANGDA, assuming it is budgeted in another bill, would be
sufficient to sustain the ANGDA through all of 2006.
MR. HEINZE offered his understanding that the $2.17 million that
was passed by the legislature in the fast track supplemental
bill but vetoed by the governor is now part of the "working
amendments" to the supplemental bill currently in the Senate
Finance Committee. He added:
That $2.17 million is the sum of money to take this
next step ... [of] - once we receive a right-of-way to
cross the state the land, which is the dominant land
position along the way - ... dealing with issues of
very specific design in certain areas along the
pipeline, acquiring right-of-way, doing the permitting
and other types of work like that, that are necessary
to basically put together the funding package for the
project. And, again, this will be a bonded-type
package as a utility company, and the $2 million gets
us towards that next step. ...
We would be prepared to issue those contracts at a
time that is fairly coincident with whatever contract
or whatever agreement is made, or reached, on the
North Slope project, whether it be down the highway or
to Valdez. And the reason for that is, we believe
that it is wisest to do the spur line as a pre-build
into the big project, to cut the time delay in getting
the critically needed gas to the Cook Inlet area. ...
That is all that money does, and it, very frankly,
barely does that. That's cutting it pretty tight on a
number of items in that budget. But that is entirely
different from what we would see as the need for the
broader issue of getting North Slope gas to Cook
Inlet, if necessary, even by some direct route or some
other route.
5:50:17 PM
PAUL FUHS, Volunteer Lobbyist for Backbone 2, explained that
Backbone 2 is a citizen organization promoting gas line
development in Alaska. He stated that [the bill] is important
in order for Alaska to maintain all of its options for bringing
gas down [from the North Slope]. He said, "While we support the
bigger projects and hope that they go through, ... there's no
guarantee that any of the big projects are going to move forward
quickly." He added:
The other thing that's important about this, from the
strategic sense of bringing the gas to Southcentral
Alaska, is that we know the biggest battle is to
secure a gas supply for the project, and there's been
a lot of discussions about that lately, ... [regarding
the things] that the state might do to help make that
happen if, in fact, there's no willingness on the part
of the producers to either produce the gas themselves
or to sell it to anybody else. This project, as
proposed as a bullet line, is a 24-inch line and could
operate with the state's royalty gas from the North
Slope, and it is critical that we bring the gas to
Southcentral.
5:51:58 PM
MR. FUHS noted that the price for gas has been going up and is
projected to double in the next five years. He also predicted
that "without getting Alaska gas, we're going to lose the LNG
[Liquid Natural Gas] plant in Kenai," and noted that LNG is not
considered a manufactured product. He mentioned that there is
also propane in the gas, and therefore propane could be shipped
to coastal and rural Alaska to provide relief regarding high
energy prices. He opined, "I do think this is an appropriate
use of the Railbelt energy fund because energy's critical, both
to the cost of living [for] ... people in Southcentral and to
the competitiveness, as a region, as a place for businesses to
operate." In addition, he offered his belief that the ENSTAR
Natural Gas Company would be interested in "this" because it
would be a tax-exempt corporation. Such accounts for about 35
percent in federal taxes and net proceeds, and those savings can
be passed on to the consumers and users of gas in Southcentral.
5:53:47 PM
CHAIR KOHRING asked if the proceeds from the Alaska Railroad
bonds could be used to build a gas line.
MR. FUHS replied affirmatively, and added that the "federal
guarantees" could also be used for this project.
CHAIR KOHRING mentioned passage of a bill a few years ago
authorizing the use of up to $18 billion in low interest rate
tax-exempt bonds as a funding source to build a gas line.
5:54:31 PM
REPRESENTATIVE ROKEBERG asked Mr. Fuhs if he could work with
Representative Rokeberg's office on that issue.
MR. FUHS replied that he would.
5:54:52 PM
CHAIR KOHRING, after ascertaining that no one else wished to
testify, closed public testimony on HB 254.
5:54:56 PM
REPRESENTATIVE KERTTULA asked if the bill was written such that
it is in essence a loan to the ANGDA.
REPRESENTATIVE ROKEBERG referred to subsection (c) on page 3,
and explained that it is actually an appropriation. He said:
The idea is ... to look and see if we can get the
recovery of those costs, pay it back to the Railbelt
energy fund from the private sector. ... The idea here
is to get the preliminary work done in a more timely
manner and seek to form an organization ..., some type
of authority which can take advantage of the taxes and
funding perhaps, but it would be a project entity from
which this group could recover the funding.
5:56:38 PM
REPRESENTATIVE McGUIRE moved to report HB 254 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 254 was reported from the
House Special Committee on Oil and Gas.
HB 286 - VALUE OF ROYALTY ON GAS PRODUCTION
5:57:41 PM
CHAIR KOHRING announced that the final order of business would
be HOUSE BILL NO. 286, "An Act amending the manner of
determining the royalty received by the state on gas production
by directing the commissioner of natural resources to accept,
under certain circumstances, the transfer price of the gas if
established by transfer price order of the Regulatory Commission
of Alaska; and providing for an effective date."
SARA NIELSEN, Staff to Representative Ralph Samuels, Alaska
State Legislature, sponsor, presented HB 286 on behalf of
Representative Samuels. She stated:
House Bill 286 is a simple housekeeping bill that was
brought forward by [Anchorage] Municipal Light and
Power (ML&P). This bill amends current statute by
adding language that allows the Department of Natural
Resources [DNR] to use the gas transfer price set by
the [Regulatory Commission of Alaska (RCA)], much like
DNR uses the contract price for gas. The transfer
price is the rate that ML&P is required to charge
itself for the Beluga Field gas that [it] uses.
[The Department of Natural Resources] agreed to let
ML&P ... continue to use the current statute based on
the "ML&P/Shell" contract even after ML&P bought
Shell's interest in the field, but that contract
expires at the end of this year. While ML&P's share
in the Beluga River Field will assure ML&P of a supply
of gas without this legislation, ML&P will be unable
to continue to use current statute for its gas. The
proposed change is consistent with the purpose of the
original law, and also will help ensure that Anchorage
electric consumers have certainty and stability in
their electric rates.
5:59:55 PM
JIM POSEY, General Manager, Anchorage Municipal Light and Power
(ML&P), by way of introduction, reiterated a few of Ms.
Nielsen's comments.
6:01:12 PM
REPRESENTATIVE ROKEBERG asked how the price is set.
MR. POSEY replied that the RCA sets a transfer price that's
based on the interest payments on the $120 million that [ML&P]
used to buy the field. He added, "It is a price set by the RCA
that allows us to sell it to ourselves and have a reasonable
rate without having harm to our rate payers."
CHAIR KOHRING ascertained that regulatory counsel for ML&P was
available for questions.
6:02:24 PM
MARK MYERS, Director, Central Office, Division of Oil & Gas,
Department of Natural Resources (DNR), stated that the DNR
supports HB 286. He added:
It was ... recognized previously by the legislature
that utilities need a stable price, and under AS
38.05.180(aa), they ... don't have to use our "higher
of" provision - they actually use the sales price in
providing gas to their customers. And then the state
gets that sales price, not the "higher of" value,
which [is] an average of those received by other
producers from the same producing area. So [it]
provides a mechanism to provide a stabile rate and
base for royalty gas sold to public utilities, and it
recognized [that] the good of a public utility is in
the best interest of the state. So we have an unusual
situation here, where the public utility [that] uses
the gas is also the gas producer, and that's never
been covered in our law before.
So this amendment allows that affiliated producer and
marketer/seller of the gas to use a simple value.
And, again, sometimes there can be concerns of
affiliated transfers, that they don't represent actual
value; however, in this case, because you have an
independent price-setting agency, ... [the] RCA, that
provides sort of an independent review of that price
to make sure it's not artificially low or
unreasonable. So in this case, again, if [the] DNR
would disagree, they still could go back and challenge
it, but in general I think we would be satisfied with
the RCA. ... So we're very comfortable; this is well
within the intent of what [the original AS
38.05.180(aa)] was supposed to do.
6:04:37 PM
REPRESENTATIVE ROKEBERG said that according to prior testimony,
it seems as though the prices would be relatively low if they
are based solely on the interest rates paid on the original
purchase price. He asked how the state's interests will be
protected.
MARTIN T. SCHULTZ, Commercial Analyst, Audit Section, Central
Office, Division of Oil & Gas, Department of Natural Resources
(DNR), explained that under HB 286, the ML&P - or any other
entity - would still have to apply to the DNR to have its gas
valued at the transfer price, which would be reviewed by the DNR
commissioner, and the DNR could decline to use the transfer
price to establish royalty value if the commissioner believes
that that price is unreasonably low. He mentioned that proposed
AS 38.05.180(aa)(2) outlines the aforementioned review process.
REPRESENTATIVE ROKEBERG asked whether ML&P pays royalty fees to
the state.
MR. SHULTZ said yes.
REPRESENTATIVE ROKEBERG asked for clarification.
MR. SCHULTZ said that ML&P currently pays royalty on the gas it
uses "internally" at its affiliated utility, and that price is
based on the negotiated third party contract price that was used
when [Shell Western E&P Inc.] sold gas to ML&P. Therefore,
currently, the "higher of" value is not applied to that gas.
6:07:26 PM
MR. MYERS added that the royalty rate itself is consistent with
the "under the lease" contract. The only question left to
debate is what the actual sale price would be, since the gas is
being taken "in-value" rather than "in-kind." He predicted that
the RCA would not want to use a price if it were determined to
be artificially low, and also that the DNR would not allow such
a price anyway. The goal is to treat the ML&P just like every
other utility and provide it with a long-term stable price.
6:08:46 PM
REPRESENTATIVE ROKEBERG said it seems like one could, under the
bill and using the transfer price, have a price lower that what
it is currently.
MR. SCHULTZ reiterated that if the transfer price was determined
to be an unfair price, then the DNR commissioner would decline
to use it.
6:09:49 PM
REPRESENTATIVE ROKEBERG asked whether a finding would have to be
made any time there's a change in the price.
MR. MYERS said he didn't think the question would automatically
go back to the RCA; instead, the issue would be decided by the
commissioner of the DNR. He added that if ML&P's "rate base was
based" on a higher gas sales price, then it could go to the RCA
and ask for a rate increase.
6:10:37 PM
REPRESENTATIVE ROKEBERG noted that proposed AS
38.05.180(aa)(1)(B) says, "the transfer is an affiliated
interest, as that term is defined in AS 42.05.990, and the
transfer price between the lessee and the utility is established
by an order of the Regulatory Commission of Alaska". He asked
whether that language applies to a different set of
circumstances.
MR. MYERS explained that that language is the default; if the
DNR doesn't think that that price is justifiable, it can decline
to use it. He reiterated that AS 38.05.180(aa)(2) outlines the
review process criteria, and that the ML&P could go to the RCA
and ask for a rate increase.
REPRESENTATIVE KERTTULA referred to page 2, line 13-14, and
noted that it says in part, "and ... unless". She characterized
that sentence construction as confusing, and asked for
clarification.
MR. SCHULTZ replied that under the way the statute is currently
structured, which will remain the same even with the change
proposed by the bill, the producer makes an application to the
DNR for the treatment specified in AS 38.05.180(aa) and it gets
to use its contract - or, under a change proposed in the bill,
its transfer price - unless the commissioner makes a written
finding declining to use that price. Thus, if the DNR didn't
issue any finding, the contract price or transfer price would be
used.
6:14:05 PM
REPRESENTATIVE KERTTULA noted that line 9, page 2, contains the
word "or", and suggested that its use may constitute a
grammatical error.
6:14:32 PM
KATE GIARD, Chair, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community, & Economic Development
(DCCED), said that the RCA has read the legislation and is
comfortable with it. In response to questions posed earlier,
she said:
The RCA issued order number U-96-36, ... which
discusses and clarifies, for the members, the method
of calculating the transfer price that is discussed in
this legislation. And annually, from this point
forward, ML&P will file with us a calculation of their
transfer price, and it's based on their actual
production costs times their debt-service ratio. So
they'll take their costs - and for purposes of
illustration, let's just pretend it's a $1 million -
then they'll multiply that $1 million times their
debt-service coverage rate, which is 1.6. So we then
will calculate from that; we'll have their actual
production costs and we'll have their debt-service
coverage that we set, and we'll ... review their
proposed calculations to us of the ... transfer price.
So to answer the questions that Representative
Rokeberg ... [asked], the calculation will be fully
analyzed and vetted here within the commission.
Frequently, when ML&P proposes or brings forward a
tariff, which they'll do every single year now - we've
ordered them to do that - there's an opportunity ...
for the public advocate, which is an arm of the
attorney general, to participate in the evaluation of
that calculation. And so there is, through this
process, a coming to the RCA - a mechanism for the
public to weigh in. And obviously the advocate would
be looking at those costs, making sure that they're
not too low or too high, as well as [having] an
opportunity to opine on whether ... they're fair and
reasonable.
So all of that is brought before us, and we take it
into consideration when we make a calculation. And I
appreciate that the Department of Natural Resources
probably wanted to put a failsafe ... [mechanism in
the bill], but believe, truly, that it'd be a very
rare event, where we would fully vet a calculation of
this nature and then that it would have a problem with
it.
6:17:22 PM
CHAIR KOHRING, after ascertaining that no one else wished to
testify, closed public testimony on HB 286.
6:17:54 PM
REPRESENTATIVE ROKEBERG moved to report HB 286 out of committee
with individual recommendations and the accompanying zero fiscal
notes. There being no objection, HB 286 was reported from the
House Special Committee on Oil and Gas.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
6:20:00 PM.
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