03/05/2007 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB26 | |
| Presentation: Initial Brief of the Ferc Trial Staff | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 26 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 5, 2007
1:01 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
MEMBERS ABSENT
Representative Vic Kohring
Representative Scott Kawasaki
OTHER LEGISLATORS PRESENT
Senator Fred Dyson
Senator Gary Stevens
Senator Gene Therriault
Representative Anna Fairclough
COMMITTEE CALENDAR
HOUSE BILL NO. 26
"An Act relating to aquatic farm permitting involving geoducks
and to geoduck seed transfers between certified hatcheries and
aquatic farms."
- MOVED CSHB 26(FSH) OUT OF COMMITTEE
PRESENTATION: INITIAL BRIEF OF THE FERC TRIAL STAFF
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 26
SHORT TITLE: GEODUCK AQUATIC FARMING EXEMPTION
SPONSOR(s): REPRESENTATIVE(s) SEATON
01/16/07 (H) PREFILE RELEASED 1/5/07
01/16/07 (H) READ THE FIRST TIME - REFERRALS
01/16/07 (H) FSH, RES
02/02/07 (H) FSH AT 8:30 AM CAPITOL 124
02/02/07 (H) Heard & Held
02/02/07 (H) MINUTE(FSH)
02/05/07 (H) FSH AT 8:30 AM CAPITOL 124
02/05/07 (H) Heard & Held
02/05/07 (H) MINUTE(FSH)
02/07/07 (H) FSH AT 8:30 AM CAPITOL 124
02/07/07 (H) Moved CSHB 26(FSH) Out of Committee
02/07/07 (H) MINUTE(FSH)
02/08/07 (H) FSH RPT CS(FSH) 1DP 4NR
02/08/07 (H) DP: SEATON
02/08/07 (H) NR: LEDOUX, JOHANSEN, HOLMES, EDGMON
02/23/07 (H) RES AT 1:00 PM CAPITOL 124
02/23/07 (H) Heard & Held
02/23/07 (H) MINUTE(RES)
03/05/07 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JOHN KATZ, Deputy Associate Counsel for Energy Projects
Federal Energy Regulatory Commission
Washington, D.C.
POSITION STATEMENT: Reviewed the procedures of the case.
KATE GIARD, Chairman
Regulatory Commission of Alaska
Anchorage, Alaska
POSITION STATEMENT: During presentation related to the FERC
case, answered questions.
CARMEN GENTILE, Attorney at Law
Bruder, Gentile & Marcoux, L.L.P.;
Counsel for Regulatory Commission of Alaska
Washington, D.C.
POSITION STATEMENT: Testified that the objective in the current
FERC litigation is to protect the sovereignty of the state over
the setting of rates for oil transportation within its
jurisdiction.
STEVEN BROSE, Attorney at Law
Steptoe & Johnson L.L.C.;
Counsel of Record for the TAPS owners
Washington, D.C.
POSITION STATEMENT: Spoke as one of the counsel of record for
the TAPS owners in the FERC proceeding.
PHILLIP REEVES, Assistant Attorney General
Oil, Gas & Mining Section
Criminal Division (Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Testified that the state's brief seeks to
correct the unjust discrimination and undue prejudice.
MARK HANLEY, Public Affairs Manager
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Discussed how Anadarko came to file a case
on the interstate rate.
KIP KNUDSON, External Affairs Manager
Tesoro Alaska Pipeline Company
Anchorage, Alaska
POSITION STATEMENT: Highlighted points in the brief important
to Tesoro.
ROBIN BRENA, Attorney at Law
Brena, Bell & Clarkson, P.C.
Anchorage, Alaska
POSITION STATEMENT: Testified that the TSM was a bad deal for
the state, resulting in rates that are twice what they should
be.
JONATHAN IVERSEN, Director
Anchorage Office
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Presented scenarios in regard to possible
FERC rates.
JOYCE LOFGREN, Economist
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During Department of Revenue's
presentation, answered questions.
JOHN RUSH, Oil & Gas Revenue Auditor
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During Department of Revenue's
presentation, answered questions.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 1:01:40 PM. Representatives
Gatto, Johnson, Wilson, Seaton, Roses, and Guttenberg were
present at the call to order. Representative Edgmon arrived as
the meeting was in progress. Also in attendance were Senators
Dyson, Stevens, and Therriault and Representative Fairclough.
HB 26-GEODUCK AQUATIC FARMING EXEMPTION
1:02:07 PM
CO-CHAIR GATTO announced that the first order of business would
be HOUSE BILL NO. 26, "An Act relating to aquatic farm
permitting involving geoducks and to geoduck seed transfers
between certified hatcheries and aquatic farms."
1:03:02 PM
REPRESENTATIVE ROSES moved to report CSHB 26(FSH) out of
committee with individual recommendations and the accompanying
fiscal notes.
1:03:08 PM
REPRESENTATIVE GUTTENBERG objected for purposes of discussion.
Representative Guttenberg said that it would be wonderful to
have the opportunity to build another industry. However,
placing the department and scientists in a position of proving a
negative is of concern. He questioned the impacts of expanding
the geoduck fishery into areas where geoducks aren't [naturally
occurring]. He then withdrew his objection.
1:03:54 PM
REPRESENTATIVE WILSON objected for discussion purposes. She
opined that there are many unknowns in this situation, such as
in regard to sterile geoducks. She said that she has some
reservations. She then withdrew her objection and noted that
she won't be voting for the legislation.
1:04:22 PM
There being no further objection, CSHB 26(FSH) was reported from
the House Resources Standing Committee.
^PRESENTATION: INITIAL BRIEF OF THE FERC TRIAL STAFF
1:05:05 PM
CO-CHAIR GATTO announced that the next order of business would
be a presentation regarding the initial brief of the Federal
Energy Regulatory Commission (FERC) trial staff.
1:06:10 PM
JOHN KATZ, Deputy Associate Counsel for Energy Projects, Federal
Energy Regulatory Commission, began by informing the committee
that because this matter is under litigation, he can't really go
into details about the case. He noted that the positions of
commission staff are just that and not the position of the
commission itself. Similarly, Mr. Katz specified that his
remarks relate to his position, not that of the FERC or any of
the commissioners. He then informed the committee that
procedurally, in terms of the FERC's processing of this case,
all the interested parties filed initial briefs that followed a
long set of hearings before an administrative law judge. The
parties can then file reply briefs in which they try to rebut
the position of others, which are due March 21, 2007. The
initial decision of the administrative law judge is expected in
May. Once that is issued, the parties have 30 days to file
briefs on exceptions, which essentially explain what they
believe is wrong with the judge's decision. The parties have 20
days thereafter to file briefs opposing exceptions. The matter
then goes before FERC, which doesn't have a set time table or
deadline by which it must act on the administrative law judge's
hearing. Once FERC issues its decision, it's subject to
rehearing before FERC. Once parties have filed a request for
rehearing, FERC issues an order of rehearing. At this point,
the matter is eligible to go to the U.S. Court of Appeals.
1:09:01 PM
CO-CHAIR GATTO surmised then that it's likely that the matter
[won't go to the U.S. Court of Appeals] until the end of the
year.
MR. KATZ said that's a likely timeframe. He pointed out that
the FERC doesn't have a statutory deadline so [the timing]
depends on the complexity of the matters raised before the FERC
as well as the time it takes FERC staff to prepare a draft order
and the FERC to review it. Mr. Katz noted that there are five
commissioners [in Washington, D.C.] and they issue orders acting
as a body. By way of background of the case, Mr. Katz related
that in 1985 there was a FERC-approved settlement of an ongoing
TAPS case. He explained that when the FERC approves a
settlement, it applies a different standard than if it were
acting itself under a statute. Therefore, the FERC reviews
whether the settlement is fair and reasonable. If the FERC is
determining a rate case, as it is in this instance, it's
required by the Interstate Commerce Act to determine whether the
rates are just and reasonable. The aforementioned is done on a
cost-base rate process, which is very complex. In this case,
the settlement has been in place for a number of years and one
party made a filing suggesting that the rates in question
weren't just and reasonable and requested that cost-base rates
be set. The FERC is in the process of doing so in this
proceeding. Mr. Katz related that in the brief of FERC staff it
was indicated that the position taken by the state was
consistent with what FERC staff believed to be the correct
procedure. He mentioned that the brief also mentions the
[Regulatory Commission of Alaska (RCA)], its rates, and how
those relate to the interstate rates.
1:11:46 PM
REPRESENTATIVE GUTTENBERG related his understanding that the
settlement is a larger issue itself. He asked if it's Mr.
Katz's opinion that the state received a fair deal on this
settlement.
MR. KATZ answered that the state would have to make that
judgment call.
1:13:11 PM
KATE GIARD, Chairman, Regulatory Commission of Alaska (RCA),
related that she believes it will be helpful for the committee
to speak with the RCA's FERC counsel, Mr. Gentile, who
represented the RCA in this matter. She then offered to answer
any questions of the RCA.
1:14:10 PM
CARMEN GENTILE, Attorney at Law, Bruder, Gentile & Marcoux,
L.L.P., Counsel for Regulatory Commission of Alaska, stated that
[the RCA] has one objective in the current FERC litigation: to
protect the sovereignty of the state over the setting of rates
for oil transportation within its jurisdiction. The RCA didn't
seek out this case, rather it was thrust on the RCA by the TAPS
carriers. Without speculation regarding motivation, Mr. Gentile
opined that the carriers were upset that the TAPS settlement was
being challenged. Furthermore, the carriers give the impression
of attempting to strike out in every direction in order to
maintain the settlement arrangement that they have, which they
perceive to be to their advantage. The tool that the carriers
are using to encroach on the state's jurisdiction is Section
13(4) of the Interstate Commerce Act (ICA). He explained that
the aforementioned provision originated in legislation that was
under the jurisdiction of the Interstate Commerce Commission
(ICC) and mainly applied to railroad traffic. Basically,
Section 13(4) created, in extraordinary circumstances, an ICC
right to override a state regulatory determination. The
aforementioned could only be exercised in extraordinary
circumstances, he emphasized. Congress was clear in its
recognition that the state had paramount authority over
intrastate rates. Congress permitted the federal override only
in circumstances of clear discrimination and circumstances when
the state's rate was so low that it created a burden on
interstate commerce. The Supreme Court, in its interpretation
of Section 13(4), has maintained the state's regulatory
authority over intrastate rates was to be respected. He noted
that the state's regulatory authority could only be overturned
in the following circumstances: when detailed findings were
made to illustrate that discrimination existed, there were
unfair advantages conferred on intrastate shippers, or in
circumstances in which the state's rates were so low that they
weren't making a fair contribution to the carriers' overall
cost.
1:18:10 PM
MR. GENTILE said that the question is whether Section 13(4) has
ever been used with respect to oil transportation, to which he
said no. The provision was chiefly aimed at railroads. Whether
Congress really intended the provision to apply to oil
transportation is dubious, he opined. The aforementioned was
pointed out to the administrative law judge in the briefs that
were submitted for her consideration. Mr. Gentile said that
[the RCA] has also pointed out to the judge that basically the
TAPS carriers have failed to submit any evidence supporting a
claim under Section 13(4) to reduce the state rates. The
evidentiary deficiencies were of two kinds. First, the carriers
didn't submit any cost of service evidence, but rather the
carriers' evidence was hypothetical evidence based on the TAPS
settlement which uses hypothetical costs. He noted that the
carriers submitted two other technical analyses that were also
predicated on hypothetical costs. Mr. Gentile said that [the
RCA] told FERC that unless actual cost of service evidence was
submitted, there was no way FERC could determine that the rates
were too low or discriminatory. He opined that all participants
in the proceedings, save the TAPS carriers, agreed with the
RCA's position. Mr. Gentile then highlighted that [the RCA]
contended that the carriers hadn't submitted any evidence to
illustrate any burden on interstate commerce.
1:21:10 PM
MR. GENTILE explained that he has made the aforementioned
contentions in the hearing and has defended the sovereignty of
the Alaska process and the integrity of the RCA's ratemaking
process in its Order 151. Of particular importance is that the
carriers, through the TAPS settlement, collected accelerated
depreciation over a number of years. In ratemaking, the more
depreciation is taken, the smaller the investment base because
the accumulated depreciation is subtracted from the rate base.
The carriers asked not to recognize that historical actual
depreciation, which puts them in the position of seeking a
double recovery. He noted that he hasn't made any contentions
regarding the interstate rates, but has pointed out to FERC that
considering the interstate rates the RCA appropriately took into
account these depreciation recoveries. The matter, in terms of
the initial brief, has now been submitted to the administrative
law judge. The RCA will submit reply briefs March 21st. As
indicated earlier, all of the parties in the case, except the
carriers, support the State of Alaska's position. Mr. Gentile
opined that the administrative law judge was sensitive to the
RCA's views, and therefore he is optimistic that the
administrative law judge will write a favorable decision. He
concluded by relating that this case will likely go to the
courts for final resolution.
1:24:10 PM
CO-CHAIR GATTO inquired as to how the rates the state is paying
would be impacted if the decision was made that the producers
have to charge a lower rate to the complainants.
MS. GIARD related that the aforementioned question will likely
be answered by Anadarko Petroleum Corporation (Anadarko) and
Tesoro Alaska Company (Tesoro) during its presentation. The RCA
wouldn't have a position on the impact of interstate rates and
the rate the RCA has deemed just and reasonable.
1:25:12 PM
REPRESENTATIVE GUTTENBERG requested more explanation of the
earlier reference to double recovery.
MS. GIARD again said that the answer would be better presented
by Anadarko and Tesoro as it's a component of the interstate
case.
1:26:06 PM
STEVEN BROSE, Attorney at Law, Steptoe & Johnson L.L.C.; Counsel
of Record for the TAPS owners, clarified that he isn't appearing
today to discuss the merits of the issues in the FERC case or to
argue in favor of the TAPS owners' position in the case. The
TAPS owners have submitted a detailed legal brief that defends
the rates as lawful under the governing standards and in
compliance with the TAPS settlement agreement. Therefore, it's
appropriate to allow the FERC decision makers to rule on the
issues based on the arguments in that brief and those filed by
the other party. He specified that his comments will focus on
the procedural status of the case and how it can be expected to
unfold going forward. With regard to the FERC proceeding, that
case relates to the TAPS interstate tariff rates. The TAPS
interstate tariff rates are the rates for service on TAPS for
barrels that travel the full distance to Valdez and are loaded
on tankers for destinations outside of Alaska. The interstate
rates at issue in the FERC case are for the years beginning
2005. The TAPS intrastate tariff rates, which are the rates for
service to destinations within Alaska, apply to a relatively
small portion of the total TAPS volumes. Those rates were the
subject of the separate proceeding before the RCA, which ordered
a rate reduction that's resulted in lower intrastate rates than
interstate rates at issue in the FERC case. However, one must
keep in mind that the RCA decision is still subject to active
litigation. In fact, it's currently under consideration by the
Alaska Supreme Court.
1:28:32 PM
MR. BROSE explained that in the FERC proceeding the TAPS owners
are defending the interstate tariff rates that each of the
owners filed with FERC in compliance with the agreed upon rate
methodology provided in the TAPS Interstate Settlement
Agreement. The aforementioned agreement is a binding, long-term
contract entered into in 1985 by the State of Alaska and the
TAPS owners to settle a lengthy and complex litigation regarding
the TAPS tariffs. The terms of the settlement represented
compromises on both sides. The agreement was presented to FERC,
which approved it, and was subsequently approved by a federal
court of appeals in 1985 and 1986. The agreement has
established a ceiling on TAPS rates since that time. Mr. Brose
highlighted that the agreement could terminate as early as the
end of 2008, if a new agreement is not reached by the TAPS
owners and the state in the interim. Tesoro, a TAPS shipper at
the time, wasn't a participant in the interstate settlement and
Anadarko has never been a TAPS shipper and only produced its
first barrel in Alaska that was shipped by others through TAPS
some 15 years after the settlement agreement.
MR. BROSE stated that the principle issue in the FERC case is
whether the TAPS interstate rates since 2005 satisfy the ICA
requirement that they be just and reasonable. The just and
reasonable rate standard, he explained, is intended to ensure
that the pipeline rates are fair to both the ratepayers, the
shippers who are the direct customers of the pipeline, and the
pipeline's investors. The case was tried over the course of
about two and a half months before an administrative law judge.
The record presented included written testimony of some 35
witnesses, the majority of which were sponsored by the TAPS
owners, and totaled nearly 7,000 pages of transcript with more
than 800 exhibits. Mr. Brose then reviewed the course of the
case as laid out earlier by Mr. Katz. When the administrative
judge issues her recommended decision, participants can take
exception to that decision in briefs to be filed with the FERC
commissioners. He emphasized that the decision of the FERC
commissioners will reflect FERC's position, which he expected
will be appealed to a federal appeals court by either side.
1:31:24 PM
MR. BROSE highlighted the importance of understanding that in
reaching the substantive decisions in the case, neither the
administrative judge nor FERC are bound to adopt or give special
consideration to the position of the FERC trial staff.
Furthermore, it can't be presumed that the administrative judge
or the FERC commissioners agree with the staff's view. History
has shown many times when the FERC trial staff position hasn't
been adopted by either the hearing judge or the FERC
commissioners. In the TAPS case, the FERC trial staff's brief
presents the views of a single participant in a large and
complex proceeding. The trial staff often sponsor witnesses and
cross-examine the witnesses of other parties in a case. In this
case, the trial staff elected to do neither of the
aforementioned. He noted that six other briefs with widely
varying positions were submitted at the same time of the staff's
brief. Responsive briefs are due by all participants by March
21st. Under FERC's rules, trial staff isn't permitted to
communicate about the case with the decision makers other than
through briefs and other on-the-record submissions. Mr. Brose
related his belief that the large number of complex legal issues
involving matters of contract, statutory interpretation, as well
as regulatory policy are properly entrusted to the current
process before FERC. However, one must remember that the TAPS
owners are vigorously defending the lawfulness of their rates
and opposing the positions of those who have presented against
them. He offered to provide the committee with the other briefs
filed in the case, including those of in-state refiners other
than Tesoro.
1:33:25 PM
MR. BROSE then related that the TAPS owners wish to emphasize
the procedural status of the case as it stands today. Mr.
Brose reiterated that a range of views have been presented to
the administrative law judge in the form of initial briefs.
However, none of those, including that of the FERC trial staff
is entitled to any special deference. In conclusion, Mr. Brose
said:
The case is in the very early stages of its decision-
making process, not even the initial recommended
opinion by the administrative law judge has yet been
issued, and an ultimate decision will not be announced
[for] some time, maybe quite some time in the future,
and perhaps not even until after exploration of the
settlement agreement itself. The staff brief and the
positions of Anadarko and Tesoro that you've heard
about today are not determinative of any outcome. And
we believe it's premature to even speculate on the
precise outcome of the case before a final resolution
is reached.
1:34:34 PM
SENATOR GENE THERRIAULT, Alaska State Legislature, related that
he has been struck by the fairly strong language used in the
brief. Furthermore, the individual who wrote the brief is an
individual who is charged with understanding such issues, but
doesn't have "a dog in the fight" except that [FERC] may make an
argument for the preservation of the precedent it set in the
past. He asked if Mr. Brose could comment on that. He also
inquired as to Mr. Brose's view of the language, "to agree with
that particular opinion would abrogate decades of FERC
precedent."
MR. BROSE related that [the TAPS owners] will be responding to
the FERC trial staff brief on March 21st. He said he
anticipated pointing out many instances in which the staff's
brief is inconsistent with settled FERC policy. He recalled
that the FERC trial staff wasn't one of the supporters of the
TAPS settlement agreement at the time, but he said he wouldn't
speculate the extent to which such is effecting positions today.
In further response to Senator Therriault, Mr. Brose related
that Mr. Dennis Melvin, Director of the Legal Division, has been
with FERC for quite some time. In fact, Mr. Melvin and Mr.
Brose were both [with FERC] when the original case resulted in
the TAPS settlement agreement in 1985.
1:37:44 PM
MR. BROSE, in response to Co-Chair Gatto, clarified that his
comments were that FERC staff was in disagreement. In further
response, Mr. Brose informed the committee that the FERC
commissioners approved the TAPS settlement agreement. Along the
way briefs were submitted to FERC. He recalled that FERC staff
was not among the parties actively supporting the TAPS
settlement agreement, which was supported by the TAPS carriers,
the State of Alaska, and the U.S. Department of Justice.
1:38:34 PM
CO-CHAIR GATTO surmised that once FERC has an agreement among
the parties, it essentially withdraws and doesn't object.
MR. BROSE expressed the need to distinguish between the staff
and the commissioners, who certainly don't have to accept a
settlement agreement among the parties. The FERC staff, as a
participant in the case, is entitled to present whatever views
it wants with respect to whether the agreement should or
shouldn't be accepted.
1:39:19 PM
SENATOR THERRIAULT clarified, "That acceptance was not an
admission by the commissioners themselves that the underlying
settlement would hold up to scrutiny under FERC rules on whether
the resulting tariff was just and reasonable."
MR. BROSE noted his agreement, adding that it was accepted as an
uncontested settlement as fair and reasonable in the public
interest rather than the language "just and reasonable".
1:39:51 PM
PHILLIP REEVES, Assistant Attorney General, Oil, Gas & Mining
Section, Criminal Division (Juneau), Department of Law (DOL),
began by relating that he is DOL's manager of the case for the
state's position. Mr. Reeves explained that the current FERC
litigation consolidates state protests of the 2005 and 2006 TAPS
rates on the grounds of unjust discrimination and undue
prejudice and protests of Anadarko and Tesoro that the rates
aren't just and reasonable. Therefore, the state's protests are
on substantially different legal grounds than that of Anadarko
Petroleum and Tesoro. Mr. Reeves stated:
The state's protest is grounded in the TAPS settlement
agreement. The settlement agreement expressly
provides that, "Not withstanding any other provisions
of the agreement, rates charged are subject to legal
prohibitions on unjust discrimination and undue
prejudice." The state's protest, therefore, is
actually seeking to enforce a specific term of the
settlement agreement. One of the main reasons that we
are on such a different legal path than Anadarko and
Tesoro is Anadarko and Tesoro are now parties to the
settlement agreement. In so far as rates are filed in
conformance with the settlement agreement, the state,
as a party to that agreement, will not protest them.
But, as I've said, here we have an express term that
is actually included in the TAPS settlement
methodology. The methodology by which the annual
rates are calculated, this is the final term of the
methodology and it says, "Not withstanding any other
term, the rates charged cannot violate legal
prohibitions on unjust discrimination and undue
prejudice." Those legal prohibitions are found in the
Interstate Commerce Act and it's under the Interstate
Commerce Act that oil pipelines are regulated.
1:42:48 PM
MR. REEVES continued:
The state is not here requesting a specific amount of
dollar damages, it's simply requesting a correction of
the unjust discrimination and undue prejudice in
accord with ICA Sections 2 and 3. We seek to have the
interstate rates lowered to a level at or near the
intrastate rates, to within a zone of reasonableness
determined by the commission, based on the fact that
the TAPS carriers are charging substantially divergent
rates for essentially the same service, the service of
shipping oil from Pump Station 1 on the North Slope to
Valdez. I know that there were questions regarding
calculations of what could possible refunds be, what
could the dollar amount in issue in this case be. The
calculation of the total amount of potential refunds
is subject to a lot of variables: annual throughput,
the amount of the rate reduction that might be ordered
for each year of the protest, the percentage of the
state's interest through royalties and production
taxes in the oil. I understand that you've requested
that the Department of Revenue (DOR) testify today and
I have spoken with them. They've run a calculation,
and from a professional economist perspective, that is
illustrative of what might be the high end of some
refunds. But at this point in time, the state's brief
isn't asking particular dollar amounts, we're seeking
to correct this legal prohibition on unjust
discrimination.
1:44:19 PM
CO-CHAIR GATTO asked then if Mr. Reeves is suggesting that were
a settlement to be made, the state wouldn't ask for refunds from
any past excess charges.
MR. REEVES clarified that the state isn't taking any position
that it wouldn't seek its share of refunds. In further response
to Co-Chair Gatto, Mr. Reeves explained that under the TAPS
settlement agreement the TAPS carriers file new rates annually.
Once a rate is filed, it may be protested within 30 days. The
state protested the 2005 rates that were filed in 2004 based on
the fact that the intrastate rates were $1.96 under the RCA
determination and the carriers average charge was approximately
$4.00 per barrel. The rates filed for 2006 and 2007 for
interstate shipments are higher than 2005 rates. Therefore, the
state has filed protests for the 2006 and 2007 rates as well.
He noted that RCA Order 151 determined the just and reasonable
level of rates for the intrastate shipments. As Mr. Brose
stated earlier, the aforementioned order is subject to legal
proceedings and is currently at the Alaska Supreme Court.
1:46:24 PM
SENATOR THERRIAULT posed a situation in which the challenging
parties, Anadarko and Tesoro, are successful in obtaining a
lower tariff. The aforementioned would work back through the
taxation and royalty valuation system and funds would accrue to
the state as a result of the success of the challenging parties.
MR. REEVES noted his agreement with Senator Therriault. He
highlighted that the state is not a shipper on the pipeline.
The tariffs come into play in the calculation of the state's
financial interest in the determination of the wellhead value of
the oil. He then pointed out that under the state's leases, the
state can take the royalty in-value at the wellhead, but that
has to be known. Most of the oil is sold on the West Coast,
there's a netback calculation that allows deduction of tankerage
and tariff cost. Therefore, if the interstate tariff were
reduced to the level of the intrastate tariff, then that would
relate back to the determination of the wellhead value and the
state would receive additional funds.
1:48:03 PM
SENATOR THERRIAULT remarked that the state was only able to
claim unjust discrimination because Anadarko and Tesoro went to
the RCA requesting a lower intrastate rate. He asked if the
aforementioned provided the state the opportunity to make the
claim that the formula was being applied improperly because of
the disparity between the intrastate and interstate tariffs.
MR. REEVES confirmed that the intrastate rate is widely
divergent from the interstate rate, which brings the state into
the express provision of the TAPS settlement agreement that
denies charging of discriminatory rates.
SENATOR THERRIAULT surmised then that being partners with the
companies initially on the settlement methodology bound the
state's hands. Even if the state felt that there should be a
lower tariff, it wasn't until someone else protected their
rights that the state was provided a platform upon which it
could build its case.
MR. REEVES said that the state's case is definitely founded in
the nondiscrimination provision of the TAPS settlement
agreement. Prior to when the RCA reduced the level of the
intrastate rates, those rates were calculated under a settlement
agreement that's virtually identical to the interstate
settlement agreement. Therefore, the rates were nearly always
identical and there wasn't discrimination or grounds for a
protest such as the state has levied now.
1:49:48 PM
CO-CHAIR GATTO posed a scenario in which the producers were to
overwhelming win, and asked whether the RCA would be required to
raise the rate up to the level of what the methodology would
require from the producers.
MR. REEVES related that the TAPS carriers have argued in
response to the state's discrimination claim and Anadarko
Tesoro's claim that it's the intrastate rates that are set at an
inappropriate level. Section 213(4) of the ICA is cited as
giving authority in certain circumstances for the FERC to order
an increase in the intrastate rates. However, the burden for
that is much greater than the burden to lower the interstate
rates under section 2 or 3 of the ICA. Those [sections] require
a showing that the intrastate rates don't cover a fair share of
their costs, which is a burden the carriers are required to meet
in this process in order to prevail. Failure to show the
aforementioned results in sections 2 and 3, which merely review
whether the difference in rates are outside a zone of
reasonableness and only allows for the remedy of lowering the
interstate rate.
1:51:11 PM
CO-CHAIR GATTO opined that often in the state it's a situation
in which a company has shareholders and the RCA tries to defend
the shareholders by ensuring that all of the costs are
recovered. He related his understanding that the RCA has
already evaluated that the costs are recovered, and therefore
have set the rate at $2.00.
MR. REEVES said that these questions are moving into the
specific issues of the case, which he said isn't appropriate to
enter into conversation about at this point in the litigation.
1:51:56 PM
SENATOR THERRIAULT highlighted from the staff report that there
are many statements that the companies didn't provide adequate
data or any data at all regarding whether the costs are just and
reasonable. Under the companies' claim that the RCA rates
should be raised, he asked if the companies will have to provide
actual cost data showing that the rate should be raised in order
to be just and reasonable.
MR. REEVES said that he suspects that the attorney for Anadarko
Tesoro may be willing to speak more about this claim. He noted
that the just and reasonable claim is an Anadarko Tesoro claim
versus the State of Alaska's nondiscrimination claim. He,
again, related his hesitation in getting into more detail about
the case.
1:53:08 PM
MARK HANLEY, Public Affairs Manager, Anadarko Petroleum
Corporation, began by noting that he had provided the committee
with a copy of the press release dated November 27, 2002, from
the RCA regarding its decision. The aforementioned opened
Anadarko's eyes as to the rates in the state when the RCA
claimed that there were $10 billion in excess collections in
rates that were 57 percent too high. Therefore, Anadarko looked
into the issue. Mr. Hanley informed the committee that Anadarko
is a 22 percent owner at Alpine, which amounts to about 8
million barrels a year of production. When the intrastate rate
is at $1.96 and the interstate rates for 2007 are over $5.00 a
barrel, that amounts to about $3.00 a barrel. The
aforementioned amounts to a fairly significant amount of money
on Anadarko's 8 million barrels a year. He mentioned that the
state's value would be much higher than that of Anadarko's. He
then related that in November 2004 Anadarko filed a case on the
interstate rate. He reiterated that it's a significant dollar
amount to Anadarko, and added that it does impact expiration
economics. Mr. Hanley commented that Anadarko is happy to have
FERC staff support its position.
1:55:55 PM
KIP KNUDSON, External Affairs Manager, Tesoro Alaska Pipeline
Company, related the following testimony:
Tesoro Alaska is a value-added success story in our
state. For 38 years, we've been manufacturing fuels
for Alaskans with Alaska's resources. In fact, in
1977 Tesoro had the honor of being the first Alaska
refinery to purchase crude shipped on TAPS. Today, we
purchase roughly 30,000 barrels out of the North
Slope. We buy every drop that's produced in Cook
Inlet, roughly 17,000 [barrels]. And we're in the odd
position of being an Alaskan refinery in this huge
resource-rich state having to import oil to fill our
refinery with crude. So, one of the reasons that
we're in the case is we think that the economics need
to be improved so that we can have an opportunity to
buy more crude off the North Slope.
There are a couple of points that I'll just mention
that are in the brief that are important to Tesoro.
First, that the methodology agreed to by the TAPS
owners, this is the TSM [TAPS settlement methodology]
in no way precludes a party that was not signatory to
that settlement in seeking a just and reasonable rate
through the regulatory process. The second point, and
it was also recognized in the brief, is that the TSM
methodology ... does not tease out this just and
reasonable rate. Tesoro's objective is simple, just
and reasonable rates should be in effect for TAPS
using the standard and accepted principles of
ratemaking well known at both the federal and state
regulatory levels. We believe that just and
reasonable rates will have a significant benefit to
the state, to the treasury, and have the added benefit
of increasing exploration and development of marginal
fields on the Slope.
1:57:57 PM
CO-CHAIR GATTO suggested that if the producer owns the pipeline,
then the amount of the tariff almost doesn't matter because they
are paying themselves. He asked if the state becomes a loser as
the tariff increases when the producers are simply paying
themselves.
MR. KNUDSON explained that the higher the costs associated with
producing and shipping the oil, the lower the netback value at
the wellhead. The state's taxation policy is based on the
wellhead value.
SENATOR THERRIAULT added that the higher the transportation
costs, the larger the fields have to be in order for to someone
to put them into production and ship [the oil]. For the smaller
players that are not owners of the pipeline, the shipping cost
is lost to another entity, the pipeline company. Therefore,
there is the potential chilling effect on some exploration and
development activities. Senator Therriault disclosed that he
owns $5,000 in Tesoro stocks.
2:00:11 PM
ROBIN BRENA, Attorney at Law, Brena, Bell & Clarkson, P.C.,
informed the committee that he is the attorney who represented
Tesoro in the proceeding before the RCA that lowered the state
rate from $4 to $2. He also informed the committee that he is
also the attorney representing Tesoro and Anadarko in the case
requesting that FERC establish just and reasonable rates and
lower the rates from $5 to $2. Mr. Brena explained that just
and reasonable rates means that a carrier has an opportunity to
recover its cost of operating a pipeline, the original
investment, and a reasonable return on the investment that it
hasn't yet recovered. The basic premise of just and reasonable
rates or cost-based rates is that what someone is charged is
based on the cost of providing service to them. Mr. Brena
highlighted that the $1.96 rate the RCA established on TAPS was
the first just and reasonable rate on TAPS in its 30 years of
operation, which essentially cut the rate in half. He reminded
the committee that the TAPS rates have gone from an average of
$3 in 2004 to $5 on average in 2007 while the state rate has
been $1.96, $2, which is the right rate. The amount the TAPS
[carriers] are collecting over the $2 rate is excess return and
essentially results in the TAPS carriers making a 100 percent
return on their equity for each year they operate TAPS. Mr.
Brena said that after going through the state and federal
proceedings, every objective third party has said the right rate
on TAPS is about $2. Those third parties include the RCA, the
Alaska Superior Court, and the RCA staff. Mr. Brena mentioned
that staff to Co-Chair Gatto was sent copies of the briefs of
all parties.
2:04:42 PM
MR. BRENA, referring to slide 3 of the PowerPoint titled
"Overview of TAPS Litigation to Establish Just and Reasonable
Rates", highlighted that the 1985 settlement didn't establish
just and reasonable rates and didn't purport to do so.
Therefore, the TSM doesn't work to set cost-based rates. He
pointed out that the TAPS carriers have an allowance per barrel
for throughput that's $1.19, which has nothing to do with the
costs. Furthermore, under the TSM [the TAPS carriers] are
allowed to make up whatever rate desired based on their
subjective projections of cost and throughput. In fact, the
rates among the [TAPS carriers] vary, although their costs are
the same. Mr. Brena opined that the depreciation of TAPS under
the TSM is erroneously based on an economic life of 2011 while
it's commonly accepted that it's well beyond 2034. "So, the TSM
doesn't work, never worked, was a bad deal for the state, and
resulted in rates that are twice what they ought to be," he
stressed. Mr. Brena then directed attention to page 4 of his
presentation, which relates that through 2004 the TAPS carriers
have collected $60 billion, invested $10 billion, and spent $15
billion operating the line. Therefore, the TAPS carriers have
spent $25 billion to build and operate TAPS and have received a
return of $60 billion. From any business standard, that's
excessive. When one compares the $35 billion in return and
taxes the TAPS carriers received compared to traditional
ratemaking cost-based just and reasonable rates, the TAPS
carriers over collected by $14-$18 billion depending upon the
approach. The overcollection by the TAPS carriers was held by
the RCA and observed by FERC staff and the Alaska Superior
Court. Translating that overcollection into impact on the state
was made more complicated by the petroleum production profits
tax (PPT). Prior to the PPT, for every $1 the TAPS rate is too
high, the state loses $.25 in royalty and severance taxes.
Therefore, for a million barrels a day with a TAPS rate that's
$1 too high, it amounts to $250,000 per day that it costs the
state. Currently, the TAPS rates are between $2-$3 too high,
which is a substantial amount of money in additional royalty and
severance tax if FERC establishes just and reasonable cost-based
rates by applying the traditional methodologies that the RCA
did.
2:07:40 PM
MR. BRENA directed the committee's attention to slide 5, which
compares TSM with two other methods. The comparison relates the
excessive returns of the TAPS carriers. Mr. Brena reiterated
that the proper rate is about $2, although under the TSM it's $4
and has increased to $5. In order to justify the rates before
FERC, the TAPS owners did not elect to defend the rate elements
in the TSM but rather presented a proxy case that they said
represented cost-base ratemaking. He said that in order to get
the rate close to what the TSM was, the TAPS carriers had to go
back historically and put the already collected deferred
earnings and accelerated depreciation in the rate base and
request a return in taxes and request to collect it twice. The
aforementioned is the basic flaw of the proxy case as it would
permit double recovery of the actual investment in TAPS by the
TAPS owners.
2:09:22 PM
MR. BRENA identified dismantlement, removal, and restoration
(DR&R) as another major issue, which is explored on page 10.
From 1977 to date, the TAPS carriers have collected $1.5 billion
in DR&R, which has largely been front-end loaded. The
collections and earnings for the TAPS carriers amount to $17.2
billion in 2005 dollars. The TAPS carriers estimate that they
only need $2.6 billion in 2005 dollars, which means that the
TAPS carriers over collected by $14.6 billion to perform DR&R.
Mr. Brena highlighted that one of the fundamental principles of
ratemaking is that when one precollects a cost item from
ratepayers, the entity isn't entitled to a return on the
collection of operating costs. In this situation the TAPS
carriers, with the ratepayers' money, have made over $15 billion
in excess returns and refuse to acknowledge that it's
refundable.
2:10:43 PM
MR. BRENA opined that it's important to note that in regard to
just and reasonable rate matters, the FERC staff requested that
the judge adopt the positions of Anadarko and Tesoro. He then
directed attention to slide 11, titled "Indicators of a Bad
Pipeline Deal". The indicators of a bad pipeline deal are as
follows: the process was not transparent and competitive; rates
are not based on the costs of providing service; access to
existing and expansion capacity is limited; major rate and
access issues are not resolved; the State of Alaska's inherent
powers are restricted; no protections against self-dealing,
affiliated transactions; linkage to nontransportation matters;
economic assumptions are unknowable without reopeners;
unnecessarily complex; and certainty is confused with
predictability. Mr. Brena informed the committee that there was
a meeting of all the independents regarding whether to negotiate
a TSM 2 after the expiration of the existing TAPS methodology.
Without exception, the independents who gathered said they could
and would rather work with a predictable just and reasonable
standard than an artificial rate based on certainty that may be
too high for shippers and too low for the carriers.
2:15:49 PM
MR. BRENA then addressed the "bits and pieces and fair deal."
He said:
Nobody is saying you take part of a settlement and
apply it going forward. What we're saying is that
whatever the investment of the recovery profile was in
the past, you recognize it in future rates because the
ratepayers actually paid that amount. So, how do you
transition from a settlement methodology to a just and
reasonable methodology. We think you have to
recognize the investment that you've already recovered
once and you don't get a chance to recover it twice.
2:16:28 PM
CO-CHAIR GATTO asked if the Internal Revenue Service (IRS) has
ever intervened such that it reviewed the books [of the TAPS
carriers] and declared that the amount of tax paid from the
filers was incorrect.
MR. BRENA responded that he isn't aware of any rate matter in
which the IRS has ever intervened. With regard to DR&R, the
collections of DR&R were assumed by the parties not to be
deductible until the time of use, which means that deductions
for the removal of line wouldn't be received until it was
actually removed. After the deal was struck with the assumption
of the need to collect a tax allowance, the carriers obtained a
private letter ruling that allowed them to deduct $800 million.
One of the problems with the DR&R estimates was that it was
based on the assumption of a federal tax rate of 43, but it
shifted to 36 and although it was assumed not to be deductible,
that was changed.
2:17:56 PM
CO-CHAIR GATTO inquired as to the significance of allocating an
allowance per barrel. He asked if it's traceable to a cost or
something that requires it be there.
MR. BRENA reminded the committee that the allowance per barrel
started at $.35 in 1981 dollars and was inflation adjusted until
it went into effect in 1991. The allowance per barrel for 2006,
the allowance plus the tax allowance, is $1.19 per barrel. In
the case, it's uncontested that the allowance per barrel is a
noncost element and isn't directly related to the cost of
providing service. Generally, when a return on a pipeline is
determined, the investment is reviewed. This is an allowance
per barrel that has nothing to do with the remaining investment.
Essentially what has happened with TAPS is that the carriers
were allowed to charge rates upfront that included a rapid
accelerated depreciation. Therefore, the carriers received
their investment upfront. As soon as the TAPS carriers
recovered most of their investment, the allowance per barrel
began and provided them a return element that's unlinked to the
remaining investment, which was too low. Mr. Brena said that a
key determinant of whether a rate is cost-based is whether the
return element is linked to remaining investment or not. The
allowance per barrel isn't linked to the return element and it's
the primary way that the carriers are overcollecting a just and
reasonable rate today.
2:20:13 PM
CO-CHAIR GATTO posed a scenario in which a person were to do
accelerated cost recovery and recovered 95 percent of the cost
and then switch to straight line. He asked if the switch is to
only recover the remaining 5 percent or does the straight line
go back as if it was there in the beginning.
MR. BRENA explained that the very concept of depreciation is
that one is allowed to depreciate the actual cost, which was
approximately $10 billion. Through 2006 the TAPS carriers
collected $9.5 billion of the $10 billion invested, and
therefore they only had $500 million left. The aforementioned
is the basis on which the return is determined since the return
is on the remaining investment. The carriers have put forth a
case that has taken their actual investment level from $500
million to $2.5 billion and have sought to recover their
investment twice. With regard to Co-Chair Gatto's proposed
scenario, Mr. Brena said that the 5 percent remaining should be
the basis for the future rates. The aforementioned is the case
under Anadarko's and Tesoro's theory of the case, but not under
the TAPS carriers' theory of the carrier. Mr. Brena explained:
Under the carriers' theory of the case, they went back
and took a half a billion dollars and they went back
and sought to say that instead of the accelerated
depreciation that they said that they were going to
recover and that they did include in their filings and
that they did charge their ratepayers. In over 100
filings, they went to go back and to restate those
balances where the supporting schedule showed
accelerated depreciation and that supported the rate.
And they went back and tried to restate all those to
straight line. That's not the way cost-based rates
are set.
2:22:58 PM
SENATOR THERRIAULT, referencing slide 11, directed the
committee's attention to the bullet point regarding access to
existing and expansion capacity is limited. He asked if Mr.
Brena means that with a tariff that's too high, the bar is set
too high in regard to economic access.
MR. BRENA responded that the aforementioned is intended to be a
broader question than just TAPS. He pointed out that TAPS is a
common carrier line, and therefore theoretically anyone can
nominate into it. However, there are provisions in the tariff
that restrict an individual's ability to shift from carrier to
carrier. There are restrictions in total capacity by contract
such that all the carriers and the state have agreed to the
capacity limits. The aforementioned effectively reduces the
possibility of competition among the carriers. Mr. Brena noted
that TAPS includes restrictions on the tariffs on TAPS
restricting how long crude oil may be stored at Valdez so that
small producers have to pay large storage fees in order to
accumulate sufficient crude oil for transportation out of the
state. Setting aside TAPS, this point was focused more at the
gas line, which would be a contract carriage line rather than a
common carriage line. He opined that it's a bad deal when the
first entity gets to tie up the entire line and control the
market it's serving through the control of the infrastructure on
the line.
2:24:39 PM
CO-CHAIR GATTO asked if it's typical for producers to own
pipelines.
MR. BRENA said that producers own pipelines that are necessary
to get the oil and gas resources they're developing to the
market place. In the Lower 48 there are a lot of alternative
lines. Generally, the lines associated with production are
relatively short lines until they reach the pipeline
infrastructure that is subject to regulation and thus that
pipeline is subject to competitive forces due to the multiple
selections of the pipeline grid of the Lower 48. However, in
Alaska there is one pipeline from these fields and there will
always be one pipeline whether it's the gas line or TAPS.
Therefore, the terms for use of that pipeline need to be fair
for the producer and its affiliates as well as to subsequent
independents [working] on marginal fields.
2:26:07 PM
REPRESENTATIVE SEATON recalled Mr. Brena's earlier comment
regarding small carriers having to pay high storage fees in
Valdez in order to accumulate enough product to transport. The
aforementioned is an impediment to small explorers. He asked if
that storage is part of the TAPS agreement or is it a separate
charge through the Port of Valdez.
MR. BRENA said that it's a term and condition of each of the
carriers' individual tariffs and isn't addressed by the 1985
TAPS settlement. Mr. Brena clarified that he didn't mean that
the high storage costs is the only restriction. When reviewing
an independent producer's ability to do business in Alaska, one
must review whether there is open access to existing facilities
within the leases and fields or whether the independent
producers are forced to build duplicative facilities. Mr. Brena
said that it's difficult for an independent producer,
particularly for a marginal field, to bring it on line if field
facilities aren't open. It's also difficult if the regulated
facilities and transportation rates are too high because for
every $1 the TAPS rate is too high, it's a $1 less per barrel of
the value in the ground of the field. Therefore, a 300 million
barrel crude oil field on the North Slope is worth $300 million
less to that producer if the TAPS rate is a $1 too high. In
this case, the rates are $2-$3 too high, which amounts to $1
billion dollars in net impact to the economics of an independent
producer of a 300 million barrel field. Mr. Brena then pointed
out that there are a series of barriers associated with tankage
because there are only a few people who provide transportation
service by tanker. All of the aforementioned are barriers to
independent producers and illustrate that a system is in place
that works for integrated major oil rather than for
independents.
2:29:24 PM
JONATHAN IVERSEN, Director, Anchorage Office, Tax Division,
Department of Revenue, said that he was asked to put together a
scenario regarding the effects on state revenue due to possible
FERC rates. At this point, it's quite speculative and would
only be for illustrative purposes, he clarified. Mr. Iversen
said that through 2008 there isn't any change in state revenue
impacts. He said that in his scenario, the possible FERC rate
of $2 from 2005-2008 was used. The year 2008 was chosen because
it's likely that the 2009 rates won't be filed under the TSA
because the state has noticed renegotiation of the TSA and can
terminate the agreement as of January 1, 2009, if a new
settlement isn't agreed upon. He related that DOR's scenario
uses $2 rates through 2008, assumes a refund year of 2010, and a
state share of 25 percent. He noted that the refund amount
calculated would include interest. The calculation utilizes DOR
forecasted barrels. The DOR calculation arrives at a state
share of $818 million as a refund amount. Mr. Iversen noted
that the aforementioned isn't in writing and the assumptions can
be tailored to anything the legislature would like.
2:32:32 PM
REPRESENTATIVE WILSON inquired as to how much DOR predicted the
production would drop.
2:32:51 PM
JOYCE LOFGREN, Economist, Tax Division, Department of Revenue,
said that the department uses the production forecast that will
be issued in the Spring 2007 Resources Book. The production
forecast is about 10 percent lower in volume than what it was in
the fall. In response to Co-Chair Gatto, Ms. Lofgren said that
although the volumes have decreased, the most recent forecast of
oil prices are somewhat higher than they were in the fall.
2:33:57 PM
SENATOR THERRIAULT related his understanding that the model
presented by DOR covers 2005 through 2008.
MS. LOFGREN clarified that through 2007 is history. She
explained that it's the Horst (ph) historical TSM model that is
provided to the state and the state has developed a model that
attaches to that and forecasts out for the long-term forecast.
SENATOR THERRIAULT surmised then that since the numbers are
historic, the department does know what the throughput, the
price, and the tariff charged was. With that knowledge, he
surmised, that the department performed calculations with
different throughput, price, or tariff in order to determine the
impact to the value flowing to the treasury in different
scenarios.
MS. LOFGREN said that is correct.
SENATOR THERRIAULT said, "It's not calculating or counting on
any kind of penalty or anything like that because the state
hasn't asked for any, it would just be the result of Anadarko
and Tesoro being successful in their challenge and the tariff
being set using the methodology that they suggest."
MS. LOFGREN said that's not exactly the case. She explained
that in the case the department has run, the tariff is about $2
"but that is by a little bit - the unwinding of the TSM model
and we're using our forecasting based on that type of
methodology rate base."
2:35:55 PM
SENATOR THERRIAULT inquired as to the total.
MR. IVERSEN answered that it's $818,132,589, which assumes a
state share of 25 percent in the 2010, with interest.
2:36:24 PM
CO-CHAIR GATTO asked if the department has run comparisons of
the PPT versus the old method.
MS. LOFGREN related that the department worked through several
iterations last week and is currently in the throws of analyzing
it now.
2:36:53 PM
REPRESENTATIVE GUTTENBERG, referring to page 24, bullet 6, of
the FERC staff briefing, highlighted the following "the TSM uses
a cost allocation rate design mechanism that allows cost
properly allocated to interstate rates but disallowed by the RCA
to be reallocated to interstate rates." He asked if the
department agrees with the aforementioned and inquired as to
what impact that has on state revenues. He also asked if FERC
has the authority to do the aforementioned.
MR. IVERSEN said he didn't know the answer and recommended
posing those questions to Mr. Reeves.
2:38:09 PM
CO-CHAIR GATTO asked if the $818 million includes any DR&R funds
MR. IVERSEN specified that the calculation doesn't include any
DR&R.
2:38:49 PM
CO-CHAIR GATTO asked if the department could identify the DR&R
proceeds collected and the current value.
MS. LOFGREN pointed out that in the original settlement
agreement the DR&R was "a particular amount, dollar value
collected year". She offered to obtain the exhibit specifying
the aforementioned.
2:40:17 PM
JOHN RUSH, Oil & Gas Revenue Auditor, Tax Division, Department
of Revenue, related that the TSM allowed for about $1.5 billion
over the life of the agreement to be collected for DR&R. A
certain amount each year was collected. As mentioned earlier,
it was front-end loaded. The DR&R was collected in the rates
charged. Depending on the interest rate, "that could go
anywhere from $4-$6 to maybe $9 billion ... on what you've
earned on that money." He recalled that Mr. Brena spoke about a
tax deduction on the aforementioned. Mr. Rush opined that there
are significant interest and tax effects along with the $1.5
billion that has been collected thus far.
2:41:18 PM
SENATOR THERRIAULT surmised then that the calculation resulting
in the $818 million didn't anticipate the possibility that FERC
may determine DR&R was overcollected and an adjustment in the
rates as a result. Senator Therriault characterized that as
very speculative.
MR. IVERSON said that both points are correct.
2:42:28 PM
REPRESENTATIVE SEATON requested that DOR provide an outline of
the run that it's making on the tariff and the differential in
order to review the terms.
MR. IVERSEN said that the department can provide that.
2:43:11 PM
SENATOR THERRIAULT asked if the House Resources Standing
Committee would continue to monitor this as different milestones
are reached because there are significant potential impacts to
the treasury and the next transportation system for resources.
2:44:51 PM
CO-CHAIR GATTO echoed his comment from an earlier press
conference that the most important thing for the gas line is the
tariff. If the state doesn't have control over the tariff, he
expressed concern with the result of getting independent
explorers to seek additional gas that's necessary to make the
gas line an economic reality.
2:45:44 PM
REPRESENTATIVE SEATON highlighted, with regard to small carriers
and high storage fees, that entities will need people to come
forward and bring those issues to the legislature. The
legislature, he opined, needs to know publicly about other
significant blockages.
2:46:33 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:47 p.m.
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