02/10/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB9 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 10, 2012
1:07 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
Representative Bob Herron
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
Representative Mike Hawker
COMMITTEE CALENDAR
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline Development Team to
report to the legislature recommended changes to state law that
are required to enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so that the in-
state natural gas pipeline is operational before 2016; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 9
SHORT TITLE: IN-STATE GASLINE DEVELOPMENT CORP
SPONSOR(s): REPRESENTATIVE(s) CHENAULT
01/18/11 (H) PREFILE RELEASED 1/7/11
01/18/11 (H) READ THE FIRST TIME - REFERRALS
01/18/11 (H) RES, FIN
02/06/12 (H) RES AT 1:00 PM BARNES 124
02/06/12 (H) Heard & Held
02/06/12 (H) MINUTE(RES)
02/08/12 (H) RES AT 1:00 PM BARNES 124
02/08/12 (H) Heard & Held
02/08/12 (H) MINUTE(RES)
02/10/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
THOMAS WRIGHT, Staff
Representative Mike Chenault
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding the proposed
amendments to HB 9 on behalf of Representative Chenault, prime
sponsor.
JOE DUBLER, Vice President
Alaska Gasline Development Corporation (AGDC)
Director of Finance, Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to HB 9.
DAN FAUSKE, President
Alaska Gasline Development Corporation (AGDC)
CEO, Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to HB 9.
DARYL KLEPPIN, Commercial Manager
Alaska Gasline Development Corporation (AGDC)
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to HB 9.
STUART GOERING, Assistant Attorney General
Commercial/Fair Business Section
Civil Division (Anchorage)
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: Answered questions related to HB 9.
ACTION NARRATIVE
1:07:28 PM
CO-CHAIR PAUL SEATON called the House Resources Standing
Committee meeting to order at 3:07 p.m. Representatives Dick,
P. Wilson, Kawasaki, Gardner, Foster, Feige, and Seaton were
present at the call to order. Representatives Munoz arrived as
the meeting was in progress.
HB 9-IN-STATE GASLINE DEVELOPMENT CORP
1:07:54 PM
CO-CHAIR SEATON announced that the only order of business would
be HOUSE BILL NO. 9, "An Act requiring the Joint In-State
Gasline Development Team to report to the legislature
recommended changes to state law that are required to enable or
facilitate the design, financing, and construction of an in-
state natural gas pipeline so that the in- state natural gas
pipeline is operational before 2016; and providing for an
effective date." [Before the committee was Version U, labeled
27-LS0075\U, Bullock, 1/19/12, adopted as the working document
on 2/6/12.]
CO-CHAIR SEATON noted that the committee will be considering
amendments today and in the future, so the bill will not be
reported from committee today.
1:08:36 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment U.1, labeled
27-0075\U.1, Bullock, 1/25/12, which read [original punctuation
provided]:
Page 6, lines 15 - 16:
Delete "for the purpose of planning, designing,
financing, developing, constructing, owning, and
operating an in-state natural gas pipeline"
Insert "authorized to exercise the powers and
take the actions described in AS 18.56.087"
CO-CHAIR SEATON labeled the foregoing Amendment 1, and objected
for discussion purposes. He said the sponsors asked to have
this amendment introduced.
1:09:08 PM
THOMAS WRIGHT, Staff, Representative Mike Chenault, Alaska State
Legislature, on behalf of the prime sponsor, Representative
Chenault, explained that the duties of the Alaska Gasline
Development Corporation (AGDC) are laid out in the definition
section of AS 18.56.087. Amendment 1 would encompass everything
that AGDC has been charged to do under that section, instead of
limiting AGDC's duties to "planning, designing, financing,
developing, constructing, owning, and operating."
CO-CHAIR SEATON asked what specific parameters are being
identified and included in that topic.
MR. WRIGHT replied that AGDC has certain functions under the
bill itself and the sponsor wants to ensure that the definition
of the corporation includes everything that the bill charges
AGDC to do.
CO-CHAIR SEATON surmised that would include sales and marketing,
which are not included in the current definition.
MR. WRIGHT responded correct.
1:10:36 PM
REPRESENTATIVE P. WILSON pointed out that the word "is" should
be added to make the sentence read correctly.
MR. WRIGHT concurred.
REPRESENTATIVE P. WILSON moved Amendment 1 to Amendment 1 to
insert the word "is" before the word "authorized".
CO-CHAIR SEATON objected for discussion purposes.
The committee took a brief at-ease.
REPRESENTATIVE P. WILSON withdrew Amendment 1 to Amendment 1.
CO-CHAIR SEATON withdrew his objection.
REPRESENTATIVE P. WILSON moved Conceptual Amendment 2 to
Amendment 1 to insert "that is" before "authorized". There
being no objection, it was so ordered.
1:13:49 PM
REPRESENTATIVE KAWASAKI asked whether the reason for Amendment 1
is to include more powers or to specifically exclude specific
powers. He surmised it would include pretty much any power.
MR. WRIGHT answered it would include all the powers outlined in
AS 18.56.087.
REPRESENTATIVE KAWASAKI inquired which powers are not included
under the previous definition.
MR. WRIGHT replied that it could get into: eminent domain;
acquire, by purchase, lease, or gift, land, structures, real or
personal property; transfer or otherwise dispose of all or part
of the in-state natural gas pipeline; and issuing bonds. He
said Amendment 1 would a simpler route rather than just listing
all these duties again underneath the definitions section.
CO-CHAIR SEATON said the duties are defined in [the bill] for
the corporation and this ensures that regardless of the name
attached to that corporation, the corporation can exercise those
responsibilities.
MR. WRIGHT concurred.
There being no further objection, Amendment 1, as amended, was
adopted.
1:15:57 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment U.2, labeled
27-0075\U.2, Bullock, 1/25/12, which read [original punctuation
provided]:
Page 11, line 15, following "must":
Insert "be"
CO-CHAIR SEATON labeled the foregoing Amendment 2.
MR. WRIGHT explained that this is a technical amendment because
the word "be" was left out.
CO-CHAIR SEATON objected for discussion purposes.
The committee took a brief at-ease.
CO-CHAIR SEATON removed his objection after ascertaining no one
wished to discuss Amendment 2. There being no further
objection, Amendment 2 was adopted.
1:17:44 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment U.8, labeled
27-0075\U.8, Bullock, 2/7/12, which read [original punctuation
provided]:
Page 4, lines 22 - 25:
Delete all material.
Insert "[JOINT IN-STATE GASLINE DEVELOPMENT
TEAM]. The Alaska Gasline Development Corporation
[DEVELOPMENT TEAM] shall avoid duplicating studies,
plans, and designs that have already been produced or
otherwise obtained by other state entities."
CO-CHAIR SEATON labeled the foregoing Amendment 3, and objected
for discussion purposes.
MR. WRIGHT explained the sponsors want to ensure it is clear and
understood that AGDC will "avoid duplicating studies, plans, and
designs that have already been produced or otherwise obtained by
other state entities."
1:18:50 PM
REPRESENTATIVE KAWASAKI inquired whether any non-disclosure
agreements were made by the Joint In-State Gasline Development
Team, and would such agreements now be legally transferred to
the Alaska Gasline Development Corporation (AGDC).
MR. WRIGHT deferred to the representatives of AGDC.
JOE DUBLER, Vice President, Alaska Gasline Development
Corporation (AGDC), Director of Finance, Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), understood the
question to be whether any confidential agreements were entered
into by the Joint In-State Gasline Development Team. He said
the answer to that is no; all the agreements that have been
entered into have been entered into by the Alaska Gasline
Development Corporation and not the team itself.
1:20:11 PM
CO-CHAIR FEIGE asked whether any confidential agreements have
been entered into by the Alaska Natural Gas Development
Authority (ANGDA).
MR. DUBLER replied he has no way of knowing what agreements have
been entered into by ANGDA. He understood that Amendment 3
relates to the Joint In-State Gasline Development Team, not
ANGDA, but offered to research this and provide an answer to the
committee by 2/13/12.
CO-CHAIR SEATON removed his objection to Amendment 3. There
being no further objection, Amendment 3 was adopted.
1:22:27 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment U.9, labeled
27-0075\U.9, Bullock, 2/8/12, which read [original punctuation
provided]:
Page 10, line 30, through page 11, line 7:
Delete all material.
Renumber the following bill sections accordingly.
Page 11, line 13, following "pipeline":
Insert "by the Alaska Gasline Development
Corporation, a subsidiary created by the Alaska
Housing Finance Corporation under AS 18.56.086,"
Page 11, line 15:
Delete "section"
Insert "subsection"
Page 11, line 23, following "a":
Insert "necessary"
Page 11, line 24, following "authorization":
Insert "for the development, construction, or
initial operation of a natural gas pipeline by the
Alaska Gasline Development Corporation, a subsidiary
created by the Alaska Housing Finance Corporation
under AS 18.56.086"
CO-CHAIR SEATON labeled the foregoing Amendment 4 and objected
for discussion purposes.
1:22:48 PM
MR. WRIGHT noted that this is also part of HB 215, which has
been laid aside because it is being dealt with within HB 9. He
said the sponsors feel it unnecessary to change AS 38.35.200 to
make it fit for AGDC because that language applies to AGDC or an
in-state gasline; therefore, the sponsors decided not to make
those changes within that section. However, the sponsors did
want to add a section, described under Section 13 of Version U,
for judicial review, which is why this amendment is necessary.
CO-CHAIR SEATON requested Mr. Wright to explain what Amendment 4
would do.
MR. WRIGHT explained that Amendment 4 would keep the statute
named under Section 12 unrevised. The language on page 11, line
9, [Section 13], would add a new subsection [to AS 38.35.200]
dealing with judicial review, and this would remain. [Section
13] would remain unchanged to provide that this is specifically
for the Alaska Gasline Development Corporation and no other
venture.
CO-CHAIR SEATON removed his objection to Amendment 4. There
being no further objection, Amendment 4 was adopted.
1:24:58 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment U.10, labeled
27-0075\U.10, Bullock, 2/8/12, which read [original punctuation
provided]:
Page 6, lines 1 - 11:
Delete all material and insert:
"(g) Upon request by the Alaska Gasline
Development Corporation, a municipality or a state
entity shall provide water, sand and gravel, other
nonhydrocarbon natural resources, and a permit or a
lease to the Alaska Gasline Development Corporation at
the usual and customary rates. In this subsection,
"state entity" means a state department, authority, or
other administrative unit of the executive branch of
state government, a public university, or a state
public corporation.
(h) That part of the cost of providing, under
(g) of this section, water, sand and gravel, or other
nonhydrocarbon natural resources, or of entering into
a lease or issuing a permit, that is borne by the
Alaska Gasline Development Corporation for an in-state
natural gas pipeline project that is owned in whole or
in part by the Alaska Gasline Development Corporation
may not be included in the rate base in a proceeding
under AS 42 or before the Federal Energy Regulatory
Commission."
CO-CHAIR SEATON labeled the foregoing Amendment 5 and objected
for discussion purposes.
MR. WRIGHT explained that Amendment 5 addresses a concern
expressed by some committee members that HB 9 would force state
agencies to give up resources to AGDC at no charge. Since AGDC
has already paid for some of the leases it already has, the
sponsors are trying to ensure that no additional fiscal cost is
added. Thus, AGDC would be bearing the costs for leasing,
permitting, and any other nonhydrocarbon resources that it deems
necessary for the gasline, and these costs may not be included
in the rate base in a proceeding under AS 42 or before the
Federal Energy Regulatory Commission (FERC).
1:26:21 PM
REPRESENTATIVE GARDNER surmised that FERC would be involved if
the gas were for export or crossing state lines.
MR. WRIGHT agreed that FERC would be involved if the gas crosses
state lines or is exported to other states; otherwise, it is the
U.S. Department of Energy that has jurisdiction.
REPRESENTATIVE GARDNER inquired at what point FERC would become
involved if the original assumption is that the gas would not
cross state lines or be exported.
MR. WRIGHT concurred that the language does not make any
assumptions, but said that if there is a decision to export
liquefied natural gas (LNG) to another state it would be
included in this language.
1:27:10 PM
REPRESENTATIVE GARDNER asked what the actual trigger would be
for notification of FERC; for example, would it be the
contemplating, the holding of an open season, or the inviting of
bids.
MR. WRIGHT deferred to representatives of AGDC for a reply.
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), CEO, Alaska Housing Finance Corporation (AHFC),
Department of Revenue (DOR), responded that FERC would become
involved if, for example, there was an export authority out of
Port MacKenzie or elsewhere in Alaska and LNG was being shipped
into the U.S., such as the West Coast. However, if that LNG was
being shipped to the Orient or another foreign destination, the
oversight would be by the U.S. Department of Energy, not FERC.
1:28:32 PM
REPRESENTATIVE GARDNER inquired what would trigger involvement
of these [federal] agencies.
MR. FAUSKE deferred to Mr. Dubler.
MR. DUBLER answered that the trigger for getting FERC involved
would be if AGDC entered into agreements with an LNG or some
other shipper that intended to ship the gas from the AGDC
pipeline to the West Coast or some other Lower 48 destination,
including Hawaii. If the LNG facility had contracts to ship to
a foreign country, there would be no trigger and FERC would not
become involved.
DARYL KLEPPIN, Commercial Manager, Alaska Gasline Development
Corporation (AGDC), Alaska Housing Finance Corporation (AHFC),
Department of Revenue (DOR), explained that if a new LNG
facility was built in Cook Inlet, then FERC would become
involved with the construction of the new facility in terms of
mainly AHFC and environmental permitting issues. However, FERC
would not be involved with pipeline tariffs or regulations if no
gas was intended for export to the Lower 48.
1:30:07 PM
CO-CHAIR SEATON, in regard to building a new facility, new dock,
or other new structure, surmised this language means that the
expense of that facility would not be included in a sales price
or a tariff if that facility or dock was owned or partially
owned by AGDC.
MR. DUBLER replied correct. The tariff on the gas going through
the pipeline would only include costs from the North Slope to
wherever the pipe stubs up on the south end of the pipeline.
The cost of the LNG facility, wherever it was built, would be
borne by the shipper of the LNG and would be included in the
shipper's cost of shipping its LNG. The cost of the pipeline
owned by AGDC would only be the cost from one end of the pipe to
the other. Whatever happened past the end of the AGDC pipeline
would not apply to the tariff on the AGDC pipeline.
CO-CHAIR SEATON understood Mr. Dubler to be saying that HB 9
would not transfer anything beyond a pipeline and that AGDC
could not build a facility; i.e. AGDC's authority for
construction and development and purchase and marketing would
not include a facility at the end.
MR. DUBLER responded that this is correct under his
understanding of the language; the language would only allow
AGDC to transmit gas from the North Slope to Fairbanks and
Southcentral Alaska. Export facilities or LNG facilities are
not included in the authorization in HB 9.
1:32:33 PM
REPRESENTATIVE GARDNER noted that the pipeline being
contemplated would be able to carry half a billion [cubic feet
of gas per day]. However, at this point it is known the state
cannot use that much gas unless somebody else comes in to soak
up that extra gas. Therefore, the gas would have to leave the
state one way or another. She asked at what point the federal
agencies would step in; for example, would it be when a contract
is signed or when an open season is held or when it is
anticipated that that is going to be the case.
MR. WRIGHT said he thinks it would be up to the entity that owns
the facility to make that decision. For example, if it went to
the ConocoPhillips LNG plant in Nikiski, that plant would be the
one applying for the FERC license.
CO-CHAIR SEATON pointed out that AGDC is not authorized to own
that facility.
MR. WRIGHT clarified that the gasline being talked about is "up
to" half a billion [cubic feet per day]; it is not required that
it be half a billion a day. It will depend on the demand and
what is marketed.
1:34:00 PM
REPRESENTATIVE GARDNER noted that for Alaskan consumers it is
important the gasline be as big as possible, otherwise the
tariff will be too high.
MR. WRIGHT said the sponsors also want it to be as big as
possible and the hope is that something occurs in the future
that will allow the building of whatever line is deemed
necessary. However, right now the sponsors are working under
the constraints of AGIA.
1:34:34 PM
REPRESENTATIVE P. WILSON understood that Amendment 5 stipulates
that, upon AGDC's request, the municipality or the state would
have to provide to AGDC water, sand, gravel, [nonhydrocarbons],
or permit at the usual and customary rates. She further
understood that subsection (h) of the amendment would stipulate
that none of the aforementioned can be included in the rate
base. She asked for further explanation of these provisions.
MR. WRIGHT replied that AGDC is currently paying for its leases
and permits; he offered his belief that the cost of AGDC's last
permit was $189,000. Amendment 5 specifies that municipalities
and the state shall provide materials where applicable at a
usual and customary rate. Additionally, these permits and
materials could not be included in the base rate when
determining the tariff. Someone is going to pay for these
costs, he said, whether through the general fund or this way.
The sponsors are trying to keep the tariff on this gasline as
low as possible.
1:36:18 PM
REPRESENTATIVE P. WILSON understood that either the municipality
or the state is going to absorb the cost.
MR. WRIGHT responded that the municipality or the state would be
paid for any use of those resources. Public assets would be
paid for with public money, it should not be passed on to the
consumer.
MR. DUBLER interjected that what is trying to be avoided is the
state funding these expenditures out of general funds and then
having a private enterprise eventually take over trying to
recover those costs from the consumers through the tariff. The
purpose is to avoid the scenario of a private enterprise getting
credit for expenditures that it did not actually pay out of its
own pocket or through borrowing funds, and then turning around
and trying to recover those costs in its rate base.
1:37:28 PM
CO-CHAIR SEATON understood that AGDC would have to get general
fund appropriations for participation in the pipeline and would
buy gravel, water, and materials from a borough or state agency
at customary and usual prices. Those expenditures for building
the gasline would not be included in the rate base; therefore,
the general fund expense, or other mechanism of money from the
state, would be a contribution to the project.
MR. WRIGHT answered correct. He said $200 million is currently
sitting in an account waiting for the creation of a fund for
AGDC. Another $35-$40 million will likely be needed this year
for AGDC to continue its work toward an open season or "FEL 3"
and whatever else is needed to continue to get this project
sanctioned. Some of these costs are being undertaken by AGDC
now.
CO-CHAIR SEATON pointed out to members of the public that reason
for all of the committee's questions is that the committee is
making sure it understands how all the pieces fit together in
this complex bill.
1:39:14 PM
REPRESENTATIVE P. WILSON understood that right now the state, or
whoever pays for this, is never going to be able to recover its
money. She asked whether, in the long run, the state is going
to be part owner of the pipeline.
MR. WRIGHT replied that that is the decision legislators will be
making when it comes time to sanction the project.
REPRESENTATIVE P. WILSON inquired whether the state will be able
to stipulate what percentage of ownership it wants to have in
the gasline.
MR. WRIGHT again responded that that is a decision legislators
will be making at some point in time. He said this is a tool to
get AGDC to the point where the legislature will be able to
decide whether to sanction the project and one of those
decisions will be how much state participation there should be
in this project. So it is an unknown right now.
1:40:38 PM
REPRESENTATIVE P. WILSON, noting that different people may be
members of the legislature when it comes time for making these
decisions, asked whether there are provisions in the bill that
set something up so those questions get answered along with
sanctioning of the project.
MR. WRIGHT answered that he wishes there was, but all the bill
does is give AGDC the tools to move toward open season. If the
open season is successful, legislation will be brought before
the legislature that includes things in the project plan such as
financing, route, and cost. At that point in time, all of the
aforementioned decisions would be made. Also, a private
corporation could come in at this point in time to take this
over, and then any decision-making by the legislature would be
very minimal.
1:41:55 PM
REPRESENTATIVE P. WILSON asked whether something should be put
in the bill that would guarantee more than a yes or no on
sanctioning, given that the legislature may be made up of new
people.
MR. WRIGHT replied it will not be a simple yes or no answer,
there will be a lot of components in this project on which the
legislature will have to say yes or no. Therefore, putting
those issues into the bill now would be pre-mature.
1:43:08 PM
CO-CHAIR SEATON shared that members are concerned about the
broad latitude of projects that could go forward; for example,
the project could be owned by a company that is exporting some
product. The question is whether this means that all of the
state's contributions to AGDC may not be included in that. He
presumed that at the sanctioning or sale of the project to a
private corporation, the legislature at that time would
incorporate, to the extent it desires, the expenses of the
project in the sales price.
MR. WRIGHT responded that he would hope so. He added that it
could be compared to AGIA where the state is giving $500 million
to TransCanada without knowing where the project is at. The
sponsors' point is that this is the only project at this time
that has momentum, and that has a project plan that is working
toward the goal of providing gas to Alaskans, and that hopefully
sets up some economic opportunities for Alaskans. Right now, no
other project in the state is moving ahead with the dynamics
that AGDC has provided.
1:45:10 PM
MR. FAUSKE recalled that in previous testimony he spoke about
$400 million in aggregate to get AGDC through "FEL 3," and most
of the expenditures being talked about are within that $400
million. He also recalled stating that the state simply has to
spend money because no one else will to get AGDC to the position
of being sanctioned. He said some of this language is forward
thinking in regard to buying gravel, sand, and other natural
resources, and there might be an opportunity for AGDC to come
back then to discuss the fiscal impact of those purchases.
However, he continued, the vast majority of this work is to get
to the point where the legislature can sanction a project with
many of the details worked out down to a plus or minus 10
percent comfort level. He agreed with Mr. Wright that it is
premature to determine all the questions now. He guaranteed
that at the point of sanctioning it will be a very detailed and
complex arrangement, and AGDC will be spending a lot of time
with legislators, but the vast majority of questions will be
answered at that time.
1:47:01 PM
CO-CHAIR SEATON pointed out that Amendment 5 specifically deals
with sand, gravel, water, and other nonhydrocarbon resources, so
it would be well beyond sanctioning when talking about the point
of this amendment. The question is not the pre-sanctioning
expenditures but the expenditures in construction that would not
be rolled into a pipeline. Since that is a different question,
committee members are trying to understand the parameters and
what that would mean in different kinds of projects. He
requested Mr. Fauske to address this.
MR. FAUSKE specified that he was speaking to the permit aspect
in which AGDC and the Department of Natural Resources (DNR) are
currently engaged. He said it is in the sanctioning phase that
these materials will need to be purchased. The vast majority of
sand, gravel, and other materials are construction items for
building pads, roads, and so forth on the construction site of
this project.
1:48:19 PM
CO-CHAIR SEATON said Amendment 5 provides that the expenditures
for those items may not be included in the rate base in a
proceeding under AS 42 or before FERC. He asked whether this is
Mr. Fauske's understanding.
MR. FAUSKE replied that it is. He recounted that the theory in
the numerous discussions on the original [subsection] (g) was
that Peter was being robbed to pay Paul and "why would we pay
ourselves". He related that at a 2/8/12 meeting of the Alaska
Municipal League (AML) this section of the bill was discussed at
some length, and at which time he advised the attendees that an
amendment was being prepared. He said mayors and political
subdivision people were concerned that they would be unable to
meet the demands of this bill or what was expected of them, so
he thinks what is being proposed would make them feel much
easier as well.
CO-CHAIR SEATON noted that the discussion was on [subsection]
(h), not [subsection] (g).
1:49:43 PM
CO-CHAIR FEIGE understood that Amendment 5 would remove the
requirement for the state and sub-elements of the state, such as
small cities and municipalities, to provide free gravel. The
proposed new [subsection] (g) would require the payment of
reasonable and customary rates for the gravel that is purchased.
[Subsection] (h) would provide that the expenditure on that
gravel will be considered a contribution of Alaska towards the
project; therefore, when the Regulatory Commission of Alaska
(RCA) or FERC are deciding the amount of the gasline tariff, the
price will be knocked down commensurate with the amount the
state put in.
MR. WRIGHT answered correct, knowing that state resources are
available now outside of the tariff helps define the project
costs prior to the open season.
1:51:09 PM
REPRESENTATIVE GARDNER, regarding the proposed [subsection] (h)
under Amendment 5 in which the RCA or FERC decides the tariff,
noted that other parts of HB 9 would remove the RCA tariff-
making provision and the FERC would not be deciding the tariff
from the North Slope to Cook Inlet. She understood that the
effect of [subsection] (h) would be to reduce the cost of
building the gasline, thereby making it theoretically less
expensive to provide Alaska's gas to Alaskans. However, she
pointed out, the portion of gas not going to Alaskans is then
being subsidized by the state; the benefit being provided by
excluding these costs will accrue to Alaskans as well as whoever
gets the rest of the gas.
MR. WRIGHT responded that this will be one of the discussions at
the point of sanctioning.
1:52:24 PM
REPRESENTATIVE GARDNER asked what the purpose is for excluding
the cost of the sand, gravel, and water from the tariff.
MR. WRIGHT deferred to Mr. Dubler.
MR. DUBLER replied it was agreed that instead of having the
costs borne by all of the agencies supporting this project be
provided free of charge to the project, the AGDC would pay for
them like any other entity would have to do. The thought then
came up as to whether that is equitable to Alaskans to have to
pay in their rate base for the resources that belong to them.
Another thought was whether a private entity should benefit from
the state funding those expenditures up front and be able to
recover costs that it did not actually incur - that was the
overriding concern that led to the language in Amendment 5.
1:53:41 PM
REPRESENTATIVE FOSTER asked whether there would be some way to
allocate an additional cost to recoup that benefit if the
gasline went to a private entity.
MR. WRIGHT said he thinks that can be addressed somewhat in
Section 1, [paragraph] (4) on page 2, line 23, which allows for
AGDC to dispose of project assets. He surmised that if a
private entity took over the project, AGDC would charge the
entity for the costs of the assets that are being disposed.
CO-CHAIR SEATON pointed out that that is what he was alluding to
earlier when he said that AGDC's costs would be included in the
sales price if the project was sold to a private entity, because
the State of Alaska will have had general funds expended.
Nothing is in here that would exclude incorporating those costs
for materials acquired from DNR or a municipality in the sales
price or into an ownership amount; that is a decision to be made
at a future time if such a transfer goes forward. [Amendment 5]
is only dealing with the base rate for the tariff; it does not
exclude those costs from being used as part of the calculation
of percentage ownership or sales price of a pipeline.
MR. WRIGHT concurred there is nothing that prohibits AGDC in a
negotiation from having those costs included in any future sale
that it may deem necessary.
1:56:23 PM
REPRESENTATIVE FOSTER noted that Co-Chair Seaton is referring to
the sale of the pipeline and Representative Gardner is referring
to the benefit of a reduced tariff through the State of Alaska's
contribution of sand, gravel, and other materials that would go
to an entity that is liquefying and exporting the gas. He
surmised that there must be other models from pipelines around
the world for tracking the cost of that sand and gravel and
quantifying that into a per unit price to add on as some kind of
a fee if the gas is being exported.
CO-CHAIR SEATON said he thinks that is generally done through a
tariff. The question here is that the sponsors of the bill are
saying that to get this off of dead center they are committing
some state resources that will not be included in the tariff
because the tariff is anticipated to be a very significant
obstacle for a pipeline going forward. He understood that this
provision is to reduce the tariff to incentivize a pipeline. If
the pipeline is owned [by the state] the costs would not be
recovered through that tariff and if the pipeline was sold or
transferred at some point in time there is nothing that would
preclude AGDC from negotiating those prices.
1:58:23 PM
MR. WRIGHT reminded members of a previous statement made by
Representative Chenault that at some point in time the lower
tariffs would probably make up more than what those state
resources are going to cost.
CO-CHAIR SEATON asked whether that is lower tariffs on the
transmission of the state's royalty gas.
MR. WRIGHT said he cannot answer the question on royalty gas.
CO-CHAIR FEIGE said it would lower the cost to the consumer for
savings over time.
CO-CHAIR SEATON understood it would lower the cost to consumers
if the gas is used in-state.
MR. WRIGHT said correct.
REPRESENTATIVE GARDNER understood that the intention of this
provision is to lower the cost of the tariff for everybody. In
the event the entire gasline is sold the [cost] can be rolled
into the sales price, if the state chooses to do so.
MR. WRIGHT said correct.
1:59:28 PM
REPRESENTATIVE P. WILSON understood the aforementioned; however,
she said it seems to her that the pipeline is not economical,
but a way is being found for getting gas to everybody. She
conjectured that the real cost of the pipeline is so
astronomical when all of that cost is added in that it would not
be economical to sell the pipeline. Thus, if the state gives
the gasline to somebody else, then it is going to be paying to
give it to somebody else, because nobody is going to buy it if
those costs are included in it.
CO-CHAIR SEATON responded that the costs of gas in the future
are being projected and those costs could be $20 per thousand
cubic feet (MCF), in which case the project is very economical.
There could be disruptions in worldwide gas supplies from
current gas producers, so the price of gas could be high enough
to support a direct private project. There are enough unknowns,
he maintained, that it cannot be definitively said that the cost
of building the pipeline will never be economical.
2:02:24 PM
MR. WRIGHT related that the position of Representative Chenault
and Representative Hawker is that any reduction in tariff for
any user, whether commercial or public, will benefit all
Alaskans. There would be more volume, a lower tariff, and the
likelihood of a line at all; so, any way to help reduce that
tariff will be beneficial.
CO-CHAIR FEIGE, in regard to Representative Gardner's point that
the tariff would be lowered for an export customer as well as
Alaskans, advocated that that is not necessarily a negative
impact for the state. Subtracting the transportation cost from
what the customer pays, and working that back to the North
Slope, increases the gross value of that gas at the point of
production, which is where the state taxes the gas. So, the
state is not giving all that away completely, it is actually
raising the value of what it can tax and thereby increasing the
revenue on the taxation side.
2:03:53 PM
CO-CHAIR SEATON returned the discussion to Amendment 5, noting
that [subsection] (h) is the part where there is debate. He
advised that and an amendment could be added in the future
because the committee will have the bill for awhile.
CO-CHAIR SEATON removed his objection to Amendment 5. There
being no further objection, Amendment 5 was adopted.
MR. WRIGHT reported that the sponsors are working with the
Department of Law (DOL) on some issues of clarification that
might need further amending. The first meeting with the
department was this morning, he said, so the sponsors will be
working with DOL and the drafters to determine what fits into
the bill and what is unnecessary. The sponsors are also having
discussions with Mr. Stuart Goering, attorney general for the
Regulatory Commission of Alaska (RCA).
2:05:56 PM
CO-CHAIR SEATON moved to additional testimony after ascertaining
that there were no other amendments to be offered.
STUART GOERING, Assistant Attorney General, Commercial/Fair
Business Section, Civil Division (Anchorage), Department of Law
(DOL), explained that he is the full-time counsel to the RCA.
He said he is present today on behalf of the commissioners who
are out of state on commission business. He offered to answer
any background-type questions and to take any policy level
questions, such as the merits of the bill, back to the
commission for a response. He added that discussions of
technical issues between the sponsors and the Department of Law
will continue and he can answer any questions in that regard.
2:08:28 PM
CO-CHAIR SEATON, regarding the generalized concept in HB 9 to
exclude AGDC from RCA jurisdiction, inquired where the RCA would
normally have jurisdiction on a gas pipeline.
MR. GOERING replied there are two layers to that issue, the
first being the policy of whether any particular entity would
not be regulated, which is beyond what he could answer.
However, it might be something that the RCA would be interested
in commenting on, although to his knowledge the RCA has not
discussed it.
2:09:24 PM
CO-CHAIR SEATON re-stated his question to ask what RCA
regulation of an in-state pipeline means; what things does the
RCA do with a pipeline that is transmitting in-state gas.
MR. GOERING reviewed how the RCA would ordinarily regulate a
natural gas pipeline. He explained that the RCA has two organic
statutes - AS 42.05, the Alaska Public Utilities Regulatory Act,
and AS 42.06, the Pipeline Act. Under some circumstances, the
primary one being the system of ENSTAR Natural Gas Company
(ENSTAR), natural gas pipelines are regulated under AS 42.05.
That is something of a legacy issue because the circumstances
under which ENSTAR has done business all these years is somewhat
sheltered by AS 38.35.220, which does not require that ENSTAR's
right-of-way leases contain common carrier language. As a
result, ENSTAR operates as a utility pipeline, not a common
carrier pipeline. Other pipelines in the state that are subject
to RCA jurisdiction, to the extent that they have leases from
the state, operate under leases which have covenants in them
under AS 38.35.120(a)(1) that require them to be common carrier
pipelines. A common carrier pipeline is subject to the Pipeline
Act, which means that the pipeline must have a certificate
before business can be done as a pipeline carrier. If the
pipeline has not yet been constructed, it would have to have
that certificate and a permit from the RCA before construction
began. Before service could be provided, the pipeline would
have to have an approved tariff on file that would contain a
cost-based rate, as well as all of the rules and regulations
that govern the terms and conditions that the pipeline service
is provided under.
2:11:49 PM
CO-CHAIR SEATON, in regard to tariff recovery, asked whether the
RCA has parameters that cap the amount of recovery on equity.
MR. GOERING responded that the rate-making process involves five
elements. The two elements the committee is currently asking
about are the rate base, which is the size of the carrier's
investment in its plant and pipeline facilities, and the rate of
return; both of which the RCA has jurisdiction to set. It will
review the value of the pipeline for rate-making purposes and
set that value, as well as setting the return that the pipeline
carrier can receive on that rate base. The other elements of
the rate-making process involve operating expenses, allowance
for taxes, and so forth.
2:12:59 PM
CO-CHAIR SEATON, noting that under HB 9 the RCA would have no
jurisdiction, asked who would set the value of the pipeline for
municipal taxation.
MR. GOERING answered that the RCA does not set the value of a
pipeline for municipal tax purposes even if it is a common
carrier pipeline that is regulated under AS 42.06. Those are
really distinct processes and the value of a pipeline for tax
purposes is determined through the tax assessment process, which
may or may not take into consideration the same factors that the
RCA does in setting the rate base. The cost of the facilities
is the primary factor for rate-making purposes, although that
can be varied somewhat. Principally, he continued, it is based
on the original cost of the facility.
2:13:59 PM
CO-CHAIR SEATON surmised that Mr. Goering is using the term
"pipeline valuation" so that that can be a factor in determining
the tariff.
MR. GOERING replied yes, there are two parts to the equation,
both of which must be known. When setting a rate of return it
must be known what it is going to be applied to, so the
commission sets the value of the property. The applicable
statute, AS 42.06.420, provides that the commission will value
the property for the exercise of its jurisdiction and it can
take into account new construction, extensions, and additions to
the property of the pipeline carrier as those occur, but its
principal guidance is from the original cost of the project.
Whereas for tax purposes, as has been seen recently, original
cost may or may not have much to do with the tax valuation of
the pipeline.
2:14:59 PM
CO-CHAIR SEATON said the committee is trying to find out what
the effect is of eliminating RCA jurisdiction on the pipeline.
He asked whether there is another entity that would set the
tariff rate of return for an in-state pipeline if RCA does not
do this.
MR. GOERING responded that unregulated businesses are free to
set their own prices however they want, whether that is based on
the market or in response to some other force. In the case of a
publicly-owned asset, that may be set by legislation or by
processes that are set out in regulation. For example, a tariff
that is not overseen by a regulatory body is the Alaska Marine
Highway system. The marine highway has a tariff and is a common
carrier of sorts since it provides transportation services. The
assets are owned by the State of Alaska and those rates are set
through a process that he is not familiar with, which may or may
not be a cost-based process.
2:16:21 PM
CO-CHAIR SEATON commented that this is helpful in understanding
what the effects are of having or not having RCA jurisdiction.
In regard to the pipeline section about the ownership of the
pipeline and the tariff, he inquired whether there are other
aspects of having or not having an RCA-regulated pipeline.
MR. GOERING explained that the Pipeline Act provides a number of
provisions related to pipeline carriers. One provision is that
a certificated pipeline carrier must have a certificate. If the
carrier wanted to expand or extend that line, it would have to
come back and get that certificate modified. Any disputes about
interconnection with that pipeline could be resolved on the
administrative level rather than involving the courts, so an
expert tribunal would do that. A lot of things conceptually go
with a common carrier, he continued, one being the carrier
cannot discriminate in the provision of service. That is fairly
important because it means that anybody wanting to ship on the
line gets to do so under the same terms and conditions as
anybody else that is similarly situated. The RCA has the
ability there to allocate usage of a pipeline if there is a
dispute about whether somebody should be able to ship. If
people want to interconnect with the pipeline, the RCA has the
ability to oversee the interconnection process and to help
resolve disputes about who should pay for the interconnection
and whether the interconnection even should be made. For
example, if someone wants to take gas off the line at a
particular place for some purpose, whether to serve a utility or
an industrial process or to have a spur line, the commission
would be able to oversee it if it is a regulated common carrier
pipeline.
2:18:59 PM
CO-CHAIR SEATON surmised that in this case the AGDC or the owner
of the pipeline could determine whether there were going to be
disincentive rates; for example, whether gas sold anywhere on
the pipeline system would be at a postage-stamp rate or a
disincentive rate.
MR. GOERING responded it is difficult to say what the tariff
would look like if [AGDC or the owner] were regulated by the RCA
because voluminous facts go into a specific rate case. So, he
cannot say what kind of rate structure there would be if it were
regulated and what would be approved or what concepts would be
included. But he can say that if the RCA is not regulating the
rates, terms, and conditions of service, it would be up to the
pipeline owner to decide what terms and conditions it wanted to
offer service under. He supposed the courts would be the remedy
for a dispute over whether the offer was consistent with the
agreements that the pipeline owner had with the shipper.
2:20:33 PM
CO-CHAIR SEATON said the committee has been told that the RCA
would still regulate the sale of any gas that was transmitted
through the pipeline to any consumers in Alaska or utilities.
He asked whether that is correct and whether there is a
difference if the sale is to an ENSTAR or an electric
association or to a company that would be making gas-to-liquids
or LNG for export. He further asked where and which of those
RCA would still have control over should RCA oversight be
eliminated as proposed in HB 9.
MR. GOERING, assuming the bill as written for the purposes of
his answer, stated that if AGDC is unregulated the RCA would not
set the tariff that AGDC charges. He said he did not know how
that would be set, but assumed it would be set by some sort of
contract between the shippers and AGDC. If the shipper was a
public utility like ENSTAR or Chugach Electric Association, the
shipper would likely at the same time be buying gas from one or
more producers or gas marketers. Traditionally, those utilities
bring their gas sales agreements to the RCA for prior approval.
ENSTAR does this because its tariff requires it to do so.
Electric utilities do this because they want some measure of
certainty that the price they pay for gas is going to be able to
be recovered in their rates. At that point of RCA's review of
the gas sales agreement, the gas sales agreement may or may not
include transportation costs. Many of the gas sales contracts
currently in force in Cook Inlet include transportation bundled
into the price of gas, i.e. the utilities are getting gas at a
delivered price. It is possible for the utilities to structure
their contracts so the transportation tariff is broken out
separately or they may buy the gas in one transaction and buy
the transportation services in another transaction. How and
when the utilities would choose to bring those to the RCA would
be somewhat up to them.
2:24:13 PM
CO-CHAIR SEATON understood the aforementioned would only be if
it is a regulated utility buying the gas, not if it is another
entity buying the gas.
MR. GOERING answered yes, and added that that would be true for
a pipeline carrier that was dealing with an unregulated shipper,
even if the pipeline itself was regulated. The transaction of a
shipper paying a transportation tariff is not something the RCA
is necessarily involved in, nor is the RCA involved in the
purchase of the commodity, the natural gas itself, if the
ultimate customer is not a regulated utility.
2:25:19 PM
REPRESENTATIVE GARDNER inquired whether there is any example of
a pipeline in the U.S. built under terms similar to those
contemplated in HB 9, those terms being the RCA or FERC
jurisdiction, exemption from state procurement codes, exemption
from injunctive relief from the courts, 60 day time limit on
citizen protest of right-of-way issues, no standing for judicial
review by anybody who has no direct financial interest, and some
of the confidentiality terms.
MR. GOERING replied he is unfamiliar with that because he does
not have responsibility for looking at how other states handle
their pipelines. However, he continued, that does not mean it
does not exist. Alaska is somewhat unique because of its large
size and amount of resources and that the state regulates
pipelines at the level that it does. He assumed that there are
intra-state pipelines in the Lower 48, but said the most
significant pipelines in the Lower 48 are inter-state pipelines
that are not regulated by the states.
2:27:31 PM
CO-CHAIR SEATON requested Mr. Goering to contact the committee
about any policy issues that should be transmitted to the RCA
for answers.
CO-CHAIR SEATON requested Mr. Fauske or Mr. Dubler to respond to
the analysis presented by Mr. Pedro van Meurs at a recent
Legislative Budget and Audit Committee hearing in Anchorage.
[Due to technical difficulties Mr. Fauske and Mr. Dubler were
unable to respond.] Co-Chair Seaton subsequently announced that
Mr. van Meurs will be in Juneau next week and urged Mr. Fauske
and Mr. Dubler to speak to Mr. van Meurs about any questions
that that they may have.
CO-CHAIR SEATON held over HB 9 after ascertaining that no one
else wished to speak further about the bill.
2:30:47 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:30 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 9 Version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| HB 9 Sectional, version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| HB 9 Sponsor Statement- version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Amendment1-RES.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| Amendment 2-RES.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 Fact Sheet.docx |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| AGDC Legislative Recommendations.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 369.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| ANGDA - H Res Comm 02812.pdf |
HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9 ANGDA e-mail.pdf |
HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| Executed ROW Lease 072006.pdf |
HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HRES Response.pdf |
HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9 Amendment U.9.pdf |
HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9 Amendment U.7 - Feige.pdf |
HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9 Amendment U.10.pdf |
HRES 2/10/2012 1:00:00 PM |
HB 9 |
| HB 9 ANGDA conditional ROW value.pdf |
HRES 2/10/2012 1:00:00 PM |
|
| HB 9 public comment.pdf |
HRES 2/10/2012 1:00:00 PM |