02/24/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB289 | |
| HB9 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 289 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | HB 9 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 24, 2012
1:09 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 Bob Herron
Representative Cathy Engstrom Munoz
MEMBERS ABSENT
Representative Berta Gardner
Representative Scott Kawasaki
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
Representative Mike Hawker
COMMITTEE CALENDAR
HOUSE BILL NO. 289
"An Act relating to a gas storage facility; relating to the tax
credit for a gas storage facility; relating to the powers and
duties of the Alaska Oil and Gas Conservation Commission;
relating to the regulation of natural gas storage as a utility;
relating to the powers and duties of the director of the
division of lands and to lease fees for a gas storage facility
on state land; and providing for an effective date."
- HEARD & HELD
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 AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 289
SHORT TITLE: NATURAL GAS STORAGE TAX CREDIT/REGULATION
SPONSOR(s): REPRESENTATIVE(s) THOMPSON
01/17/12 (H) READ THE FIRST TIME - REFERRALS
01/17/12 (H) RES, FIN
02/24/12 (H) RES AT 1:00 PM BARNES 124
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
02/10/12 (H) Heard & Held
02/10/12 (H) MINUTE(RES)
02/13/12 (H) RES AT 1:00 PM BARNES 124
02/13/12 (H) <Bill Hearing Canceled>
02/24/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JANE PIERSON, Staff
Representative Steve Thompson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 289 on behalf of the prime
sponsor, Representative Thompson.
GENE THERRIAULT, Vice President Resource Development
Golden Valley Electric Association (GVEA)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 289.
DAN BRITTON, President/CEO
Fairbanks Natural Gas (FNG)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 289.
TOM WRIGHT, Staff
Representative Mike Chenault
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed provisions of and proposed
amendments to HB 9 on behalf of Representative Chenault, prime
sponsor.
RENA DELBRIDGE, Staff
Representative Mike Hawker
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed proposed amendments to HB 9 on
behalf of Representative Hawker, 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 regarding 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 regarding HB 9.
TINA GROVIER, Attorney, Natural Resources and Energy Law
Birch Horton Bittner & Cherot
Counsel to Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 9.
ACTION NARRATIVE
1:09:02 PM
CO-CHAIR PAUL SEATON called the House Resources Standing
Committee meeting to order at 1:09 p.m. Representatives Herron,
Dick, Foster, Feige, and Seaton were present at the call to
order. Representatives Munoz and P. Wilson arrived as the
meeting was in progress.
HB 289-NATURAL GAS STORAGE TAX CREDIT/REGULATION
1:09:23 PM
CO-CHAIR SEATON announced that the first order of business would
be HOUSE BILL NO. 289, "An Act relating to a gas storage
facility; relating to the tax credit for a gas storage facility;
relating to the powers and duties of the Alaska Oil and Gas
Conservation Commission; relating to the regulation of natural
gas storage as a utility; relating to the powers and duties of
the director of the division of lands and to lease fees for a
gas storage facility on state land; and providing for an
effective date."
1:10:12 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, introduced HB 289 on behalf of the prime sponsor,
Representative Thompson. She said the cost of energy is
crippling a good portion of Alaska's residents. The ever
increasing expense of heating homes and operating businesses
during the long cold winter is hurting the ability of Alaskans
to put food on the table and plan for the future. The Fairbanks
community alone spends over $600 million per year on space
heating and is unable to expand its business district due to a
lack of affordable natural gas. An infusion of gas in Fairbanks
would reduce the cost to end users and would restore the ability
of Fairbanks to grow its economic base.
MS. PIERSON said HB 289 would incent the private sector's
delivery of lower cost natural gas to Interior Alaska by
extending the tax credits for a liquefied natural gas storage
facility, which is necessary for a natural gas trucking project
and something that Fairbanks is considering. A new credit for
construction of above-ground liquefied gas storage tanks would
make this program flexible to fit the varying needs of gas
delivery in Fairbanks and possibly throughout the state. The
bill would apply to a liquefied natural gas storage tank
facility with a minimum volume of 1 million gallons and the
amount of the credit would be limited to 50 percent of the
construction costs up to $15 million. Additionally, HB 289
would allow eligible above-ground liquefied natural gas storage
facilities sited on state lands to request an exemption from
rental payments. The exemption could extend for up to 10 years
following the commencement of commercial operations. The bill
defines how credits should be distributed, both as a tax credit
and as payments to non-taxable entities.
MS. PIERSON pointed out that HB 289 also has safeguards. The
liquefied natural gas storage facility would be regulated by the
Regulatory Commission of Alaska (RCA) to ensure incentives are
passed on to customers. The bill would also set forth how a
person receiving a credit or a payment shall repay the credits
or payment if the facility ceases commercial operations within
the nine calendar years immediately following the calendar year
in which the facility commenced commercial operations. Further,
HB 289 would define "liquefied natural gas storage facility,"
"ceases commercial operations," and "commences commercial
operations" for a liquefied natural gas facility.
1:12:48 PM
CO-CHAIR SEATON noted for the record that before the committee
was Version I, the proposed committee substitute (CS) for HB 289
[labeled 27-LS1216\I, Bullock, 2/20/12]. He said this is the
first hearing on HB 289 and therefore Version I is the bill
before the committee.
REPRESENTATIVE HERRON, in regard to the $15 million and 50
percent credit, inquired what the estimated total construction
cost would be for a 1 million gallon facility.
MS. PIERSON replied that the sponsor has been hearing it would
be around $40 million.
CO-CHAIR SEATON asked what percentage of daily use, or how many
days of use, would 1 million gallons of liquefied natural gas
(LNG) represent.
MS. PIERSON responded that according to Golden Valley Electric
Association (GVEA), 1 million gallons would be approximately one
week of use. For the amount of usage by Fairbanks Natural Gas,
another company that would like to use this, she deferred to the
company's representative online [Dan Britton].
1:14:18 PM
CO-CHAIR SEATON inquired whether 1 million gallons would
constrain communities [that are smaller than Fairbanks] from
being able to use this proposed credit. He further asked
whether Representative Thompson would have a problem if the
amount was half a million gallons rather than a million gallons.
MS. PIERSON did not believe that that would be a problem, but
said she would research what other communities think they might
need so that there would be a basis for the number.
CO-CHAIR SEATON related that in Norway, small inner-port tankers
go from coastal village to coastal village delivering LNG into
tanks. He said it seems that this could also be applicable to
coastal communities in Alaska provided the quantity is not so
large that only the largest communities could use it.
[CO-CHAIR SEATON opened public testimony.]
1:16:33 PM
GENE THERRIAULT, Vice President, Resource Development, Golden
Valley Electric Association (GVEA), noted that GVEA is working
on projects that will move the utility away from oil-fired
electric generation. He offered appreciation to Representative
Thompson for introducing HB 289 on GVEA's behalf. He pointed
out that the 2010 [Cook Inlet Recovery Act, House Bill 280,] was
related to the need of putting a storage mechanism into the
natural gas supply stream in Cook Inlet. In that bill the
legislature decided to assist with lowering or controlling the
cost of that storage component as it was added to that supply
stream. A policy call was made that the state would offer
assistance up to $15 million with the construction of that
infrastructure.
1:18:11 PM
MR. THERRIAULT explained that, at the time, the language talked
about storage of gas in a depleted reservoir or pool as well as
a tank, a tank denoting a mechanical storage facility on top of
the ground. Because the focus at that time was on the needs of
Cook Inlet, the threshold for what size tank would qualify was
geared toward geologic storage and storage in a gaseous state
rather than a liquid state. Because gas needs to come to
Interior communities in a liquid state, that section of [House
Bill 280] was looked at for applicability to the Interior and,
if so, determining any needed modifications. One potential
problem is that threshold for how big the tank needs to be for
storing liquid methane; therefore, primary for HB 289, is
defining how big the liquid tank needs to be. He explained that
concern has been expressed by the backers of [House Bill 280]
about modifying that section of statute. They have requested
that the problem be addressed by creating a separate, almost
identical, section of statute that is geared towards natural gas
in a liquefied state. The difference between the two is that
when LNG is turned into gas its volume multiplies by 600-620
times, so the difference in quantity that is being dealt with is
tremendous. Expressing GVEA's thanks for the policy call to
provide some state assistance for putting a storage component
into the supply stream, he said GVEA is now trying to ensure
that it is workable for the anticipated project in the Interior.
1:20:26 PM
MR. THERRIAULT outlined the four major components of HB 289
[Version I]. One component would provide a 10-year waiver of
lease payments for qualifying storage facilities on state land,
as was done in the Cook Inlet Recovery Act and which would help
reduce the cost to consumers. A second component would create a
separate mechanism for providing a tax credit for the storage of
methane in a liquefied form. In response to Co-Chair Seaton, he
elaborated that Section 3 of HB 289 deals with an above-ground
natural gas storage facility tax credit patterned after the
storage tax credit that was granted in the Cook Inlet for
gaseous methane. This part of the bill would create a new
section [in statute] that mirrors the Cook Inlet mechanism, but
is for methane in a liquid form.
1:22:24 PM
MR. THERRIAULT said a third component would add the word
payment. Testimony at the time [of House Bill 280] said the
credit would be available for utilities, but it may not have
been anticipated that the utility constructing the storage
facility would be a not-for-profit, and a not-for-profit utility
does not pay tax. In regard to the use of tax credit or refund
in the existing language, legislative drafters pointed out that
use of the word refund does not fit for an entity that does not
pay tax and said that also including the word payment would
solve that problem. This way, a non-taxpaying entity building a
storage facility would qualify for repayment of a portion of the
expense rather than a tax refund. The fourth component would
establish mechanisms for the state to get back a portion of the
refund or payment if the storage facility ceases to operate
within 10 years. It would also provide for a cessation of the
waiver of the lease payments for utilization of the state land.
He specified that, primarily, Version I would create a separate
section of statute that mimics the structure put in place for
geologic storage in the Cook Inlet, but that is workable for
above-ground storage as is anticipated in Interior Alaska.
1:24:20 PM
MR. THERRIAULT stated that GVEA is partnering with Flint Hills
Resources for the project that it is currently working on. The
preliminary design anticipates a one million gallon tank located
on the North Slope and a two million gallon tank in the North
Pole area. A two million gallon tank would supply about 10 days
of need for both the Flint Hills refinery and GVEA's 60 megawatt
generation plant in North Pole. While it does not supply a huge
amount, it takes into account any possible disruptions in
trucking operations. In working with the design consultants, it
may be possible to decrease the size of the North Pole tank
because both the Flint Hills and GVEA industrial operations will
have the capability of switching back to a liquid, oil-fired
generation; it must be determined how quickly and efficiently
that could be done should there be a disruption in the trucking
operation.
1:25:31 PM
MR. THERRIAULT said GVEA believes that the most immediate way of
giving some energy assistance to the largest number of Interior
residents is to reduce the cost of the fuel that fires that
particular generator. The association serves residents all the
way down the Richardson Highway to Delta Junction and residents
all the way down the Parks Highways to Cantwell, and GVEA has
notified other potential users in this service area that it
would like to sign them up as customers once the liquid product
is flowing. Product would be delivered to them at cost or as
near to cost as possible so that it could be put to use as seen
fit to help with energy costs. For example, the LNG could be
used for a power generator that is connected on the road system
but not part of the GVEA system, or it could be used for
industrial use or industrial space heat. If the overall
capacity is increased, everybody's per unit cost will go down,
but getting the storage in place will be an integral part of
that.
1:27:12 PM
REPRESENTATIVE P. WILSON asked whether the North Slope tank will
be located on state land.
MR. THERRIAULT replied that GVEA has not yet decided where to
site the tank, but said it would likely be state land because
most of the land in that area that would provide access to the
gas is state land. In further response, he said GVEA owns
outright the property in North Pole that is located next to the
Flint Hills refinery and GVEA's generator. The North Pole tank
could also be sited on some of the land owned by Flint Hills,
but the choice has yet to be made as to which piece of land is
the most optimum location. He said GVEA is keeping in mind that
both its generation plant and the refinery have a waste heat
stream that can be used for re-gasification and GVEA wants to
use that as efficiently as possible.
REPRESENTATIVE P. WILSON inquired whether the Cook Inlet project
is located on state land.
MR. THERRIAULT offered his belief that the project is a
combination of oil and gas leases that are on state land and
possibly some private land.
1:28:43 PM
REPRESENTATIVE P. WILSON observed that the proposed fiscal note
is zero, but asked how much lease revenue the state would be
foregoing if an exemption in lease payments was granted.
MR. THERRIAULT answered that the leases are let on a fair market
value and it is a fairly modest amount, but deferred to the
Department of Natural Resources (DNR) to provide an average
rental amount for the North Slope. He noted that GVEA leases
land for its Eva Creek wind turbines and pays about $33,000-
$40,000 per year for about 40 acres. In further response, he
said the Eva Creek turbines are in the Healy area, not the North
Slope.
1:30:31 PM
REPRESENTATIVE P. WILSON asked what the differences are between
the Cook Inlet statute and the provisions being asked for under
HB 289 [Version I].
MR. THERRIAULT replied that, primarily, the total volume of gas
is different. To contain the threshold of gas that is workable
for geologic storage in Cook Inlet, GVEA would have to build a
tank that holds in excess of six million gallons of LNG. That
would be far bigger than what makes sense for GVEA's economic
activity, so any benefit to the consumer would be lost through
very inefficient operation. Also, the credit for the Cook Inlet
area is calculated on 25 percent of the construction cost or $15
million, whichever is less. [Version I] would provide for 50
percent of the construction cost or $15 million, whichever is
less. This takes into consideration that reservoirs in the Cook
Inlet can be used as the tankage, but in the Interior a vessel
must be built and therefore the construction costs are higher.
1:32:06 PM
CO-CHAIR FEIGE observed that Version I, page 3, line 28, states
that the liquefied natural gas storage volume must be "not less
than 1,000,000 gallons". He surmised that LNG trucked from the
North Slope to the Interior could be delivered far cheaper than
diesel and therefore communities on their own separate
electrical grids, such as Tok, Northway, Valdez, and Glennallen,
would benefit from this cheaper energy in the form of LNG. He
asked why [a minimum tank size of] 1 million gallons was chosen
as the limitation under HB 289.
MR. THERRIAULT responded that debate [during House Bill 280] was
that the storage be of a certain size to qualify so as to incent
big enough storage. He explained that for possible uses down
the highway system, a part of the actual North Slope resource
production requires some tankage. If GVEA signed up a customer
that was down the highway so that the trucks never stopped at
GVEA's North Pole plant, those users would get the benefit of
the million gallon storage tank constructed on the North Slope.
He said he is unsure, however, whether those communities would
think that a million gallon tank would be warranted for
receiving and utilizing the resource in their own situation.
Therefore, GVEA would be open to the committee's consideration
of less storage. He said GVEA designed something that would
work for it, keeping in mind that when the debate took place two
or three years ago a certain threshold was required before the
state credit was available.
1:34:36 PM
CO-CHAIR FEIGE inquired how many thousand cubic feet (MCF) of
gas are in one million gallons of LNG.
MR. THERRIAULT answered that it takes 12.1 gallons of LNG to
make 1 MCF of gas.
REPRESENTATIVE HERRON asked what the life expectancy of the
infrastructure would be under the business model being used.
MR. THERRIAULT replied that GVEA is going after a life of 20-30
years for the infrastructure and is hoping that an alternative
access to natural gas will come along before then. The trucking
component, which would not qualify for this, would have to be
swapped out because the life of the trucks would be shorter than
that.
REPRESENTATIVE HERRON inquired how many trucks would be needed
for the 10-day supply at the Flint Hills location.
MR. THERRIAULT responded that for serving Flint Hills' needs and
GVEA's needs in North Pole, the expectation is 40 trucks on the
road every day: 20 going north and 20 coming south in a
continuous cycle.
1:37:02 PM
DAN BRITTON, President/CEO, Fairbanks Natural Gas (FNG), noted
that FNG has been serving the Fairbanks market with liquefied
natural gas (LNG) since 1998 and currently operates a
liquefaction facility in the Cook Inlet and two storage
facilities in Fairbanks, with a total capacity of 350,000
gallons of storage. He said FNG supports HB 289 and would look
to install additional storage at one of its existing facilities,
which could be used as quickly as the tank is built. Fairbanks
Natural Gas has excess liquefaction capacity in the summer
months that could be used to fill the larger storage volume and
this volume could be used for peaking in the winter when higher
gas volumes are being sold. This would allow FNG to begin to
expand its distribution system as quickly as the tank could be
in service.
MR. BRITTON added that the tankage would provide for backup in
the event a pipeline is built. A pipeline would be a single-
source energy supply, so if a large earthquake stopped the flow
of supply that tankage could provide a backup source. Based on
FNG's current sales in Fairbanks, a million gallons of storage
would provide 15 days of LNG. Regarding the limitation that the
storage be at least 1 million gallons, he said FNG would favor
making that a smaller number for any of the other communities
that might benefit.
1:39:05 PM
CO-CHAIR SEATON requested Mr. Britton to get back to the
committee in regard to the size of tankage that would be needed
for smaller communities.
CO-CHAIR SEATON held over HB 289 and noted that the public will
be able to add further comment when the bill is next brought up.
HB 9-IN-STATE GASLINE DEVELOPMENT CORP
1:39:57 PM
CO-CHAIR SEATON announced that the next 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 the proposed
committee substitute (CS), Version U, labeled 27-LS0075\U,
Bullock, 1/19/12, adopted as the working document on 2/6/12.]
1:41:26 PM
TOM WRIGHT, Staff, Representative Mike Chenault, Alaska State
Legislature, on behalf of Representative Chenault, prime
sponsor, allowed that HB 9 is a complex and lengthy bill and
said he will review its provisions. The first of the bill's
three major components is that it would define the duties and
abilities of the Alaska Gasline Development Corporation (AGDC),
which was created under House Bill 369 as a subsidiary
corporation of the Alaska Housing Finance Corporation (AHFC).
For maximum efficiency of state resources, HB 9 would
consolidate under AHFC the state's various efforts to develop
natural gas infrastructure by making the Alaska Natural Gas
Development Authority (ANGDA) a subsidiary of AHFC and
restructuring ANGDA's role to that of a gas marketing entity.
The bill would also pave the way for an AGDC gasline to operate
as a contract carrier rather than a common carrier, both through
right-of-way leases and through regulatory oversight.
1:42:19 PM
MR. WRIGHT first reviewed the sections of HB 9 related to AGDC.
He explained that Section 1 would define AGDC's duties and
responsibilities and would allow AGDC to determine ownership and
operating structures for a pipeline and to manage its assets as
necessary. Section 1 would also allow AGDC to issue revenue
bonds to carry out its mission and would create a fund for AGDC;
this fund was approved by the House last year in HB 203.
Section 3 would transition to AGDC the Joint In-State Gasline
Development Team ability to have access to pertinent information
from other state agencies. Section 4 would give direction to
state agencies to cooperate with AGDC in the same manner that
they did with the Joint In-State Gasline Development Team.
Section 6 would transition to AGDC another Joint In-State
Gasline Team ability to enter into confidential agreements; the
basis of the confidentiality sections was approved by the House
last year in HB 189. Section 14 would build on Section 6 to
specifically exempt confidential information from the Alaska
Public Records Act; this basis of confidentiality sections was
approved by the House last year in HB 189. Section 7 would
relate to definitions. Section 29 would exempt an AGDC project
from state and local property taxes during construction only.
1:44:07 PM
MR. WRIGHT next reviewed the sections of HB 9 related to right-
of-way leases and regulatory oversight. He said Section 5 would
transition to AGDC a House Bill 369 provision that directed the
Department of Natural Resources (DNR) to grant AHFC a right-of-
way lease. Section 5 would further exempt that lease from the
common carrier covenants; the basis for which was approved by
the House last session in HB 215. Sections 8, 9, and 10 would
make conforming changes to other sections of the Alaska Right-
of-Way Leasing Act to reflect those changes made in Section 5.
Section 11 would call on state agencies to grant leases at no
cost. Sections 12 and 13 would limit judicial review on state
leasing and permit decisions; the basis for which can be found
in HB 215 passed by the House last session. Sections 25-28
would exempt an AGDC line from Regulatory Commission of Alaska
(RCA) oversight as a public utility and as a common carrier
under the Pipeline Act.
MR. WRIGHT then reviewed the bill's provisions related to ANGDA.
He noted that Section 2 would exempt ANGDA contracts from the
state procurement code. Sections 15 and 16 would redefine
ANGDA's role as a gas marketer and would remove overly
prescriptive language regarding where gas will come from and
where it will go to. Section 17 would allow ANGDA to market the
state's royalty gas with the commissioner of DNR. Sections 18-
24 would provide for the transition of ANGDA to AHFC governance
and would allow the flow of confidential information from ANGDA
to AGDC. Sections 30 and 31 would make repeals that are related
to ANGDA's new role and that are no longer necessary.
1:46:05 PM
CO-CHAIR SEATON drew attention to Version U, page 3, line 26
onward, that would establish the natural gas pipeline fund. He
understood that AGDC would be structured such that it would not
make and retain money; rather, money would flow through to the
state and the state would appropriate money to the fund to
operate AGDC.
MR. WRIGHT replied correct.
CO-CHAIR SEATON stated that this is a very important point.
MR. WRIGHT pointed out that it is subject to appropriation.
1:46:56 PM
CO-CHAIR SEATON directed attention to page 5, lines 24-26, and
asked about the reasoning for making the development, financing,
construction, and operation documents confidential and not
subject to disclosure. He presumed these documents would not be
available to the legislature.
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, on behalf of Representative Hawker, sponsor,
responded that the intent was not to keep them confidential from
the legislature specifically, but from the public in general.
The technical data developed by AGDC as it advances a project is
something that is essentially proprietary, she said. Allowing
access by interested parties to confidential or technical
information that has been provided to AGDC could put an AGDC
gasline at disadvantage if, for example, there is competition.
The ability to keep field studies and technical data
confidential relates more to AGDC's need to have that
proprietary information as AGDC develops its plan.
1:48:27 PM
CO-CHAIR SEATON said he understands the aforementioned, but his
question runs to what the purpose is for keeping confidential
the operation of an in-state gasline. He further asked whether
it is necessary to keep confidential the contract between AGDC
and shippers or suppliers because that would have nothing to do
with a competitive advantage. In response to Ms. Delbridge, he
confirmed that he is referring to subsection (f) [of Section 6]
and said he is not referring specifically to the development,
financing, or construction, but rather to the operation of the
in-state gas pipeline.
MS. DELBRIDGE deferred to Mr. Joe Dubler of AGDC.
JOE DUBLER, Vice President, Alaska Gasline Development
Corporation (AGDC), Director of Finance, Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), deferred to Mr.
Daryl Kleppin of AGDC to provide an answer to the question.
1:50:41 PM
CO-CHAIR SEATON moved to another question while online technical
difficulties were resolved to allow Mr. Kleppin to respond. He
read aloud Section 17, page 14, lines 26-29, and inquired
whether this provision is the current situation with royalty gas
and royalty oil. He further asked whether it is the DNR
commissioner who [currently] determines the price of royalty gas
or oil.
MR. WRIGHT understood that this is the case.
The committee took a brief at-ease.
CO-CHAIR SEATON noted that public testimony will be re-opened
after the committee deals with the proposed amendments to HB 9.
He then asked Mr. Kleppin to address the previous questions.
1:53:06 PM
DARYL KLEPPIN, Commercial Manager, Alaska Gasline Development
Corporation (AGDC), Alaska Housing Finance Corporation (AHFC),
Department of Revenue (DOR), first addressed the question about
Section 6, subsection (f). He explained that this subsection
specifically relates to field studies and other technical
information. A big issue with the acquisition of data is that
the data has a value and could potentially be sold at a later
date, but that opportunity would be precluded if that data was
made public.
CO-CHAIR SEATON asked whether page 5, lines 24-26, "operation of
an in-state natural gas pipeline" by AGDC relates only to field
studies and other technical information, not the operational
agreements for the operation of the line.
MR. KLEPPIN answered correct, that that particular section
relates specifically to the field studies and other technical
information.
MR. WRIGHT added that DNR will also get an answer to the
committee in this regard.
CO-CHAIR SEATON proceeded to amendments, noting that five
amendments to HB 9 were previously adopted. He informed the
committee that additional written public comment has been
received for members to review.
1:56:44 PM
REPRESENTATIVE P. WILSON moved to adopt the amendment labeled
27-LS0075\U.28, Bullock, 2/23/12, which read [original
punctuation provided]:
Page 2, line 9:
Delete "In addition"
Insert "The Alaska Gasline Development
Corporation shall, to the fullest extent possible,
advance an in-state natural gas pipeline as described
in the July 1, 2011, project plan prepared under
AS 38.34.040 by the Alaska Gasline Development
Corporation and the Joint In-State Gasline Development
Team, with modifications determined by the Alaska
Gasline Development Corporation to be necessary to
construct and operate an in-state natural gas pipeline
in a safe and economic manner. In addition to the
powers granted to it by the corporation"
Page 2, following line 26:
Insert a new subsection to read:
"(b) Upon commencement of construction of an in-
state natural gas pipeline, the Alaska Gasline
Development Corporation shall analyze potential
natural gas pipelines connecting to industrial,
residential, or utility customers in other regions of
the state. If the Alaska Gasline Development
Corporation finds that a natural gas pipeline analyzed
under this subsection is in the best interest of the
state and can meet the needs of industrial,
residential, or utility customers at commercially
reasonable rates, the Alaska Gasline Development
Corporation shall finance, construct, or operate the
natural gas pipeline as necessary, subject to
appropriation. When developing or constructing a
connecting line, the Alaska Gasline Development
Corporation shall, to the maximum extent feasible, use
existing land, structures, real or personal property,
rights-of-way, easements, or other interests in land
acquired by the Alaska Gasline Development Corporation
or the Alaska Natural Gas Development Authority."
Reletter the following subsections accordingly.
CO-CHAIR SEATON labeled the aforementioned Amendment 6 and
objected for purposes of discussion.
1:57:05 PM
MR. WRIGHT noted that Amendment 6 is a two-part amendment and he
will address the first portion and Co-Chair Feige will address
the second. He explained that during discussions it was
discovered that there is no direct link between what the Joint
In-State Gasline Development Team was supposed to be doing under
House Bill 369 to AGDC, the project plan that was released on
July 1, 2011, and the core mission of AGDC. Amendment 6 would
provide that link to carry on the mission that was presented in
the project plan. Amendment 6 would also give AGDC the ability
to modify the plan when necessary as the various phases of the
project are gone through, which is important so that AGDC can
maintain needed flexibility as it continues its work. The
project will be refined in increasing degrees as AGDC tries to
get down to that threshold of plus or minus 10 percent; so the
project may not be identical to what is in the July 2011 project
plan. Additionally, an open season will draw shippers that may
place bids on capacity on a similar, but not identical, pipeline
plan and AGDC needs to be able to respond to any of these
changes.
1:58:47 PM
CO-CHAIR SEATON pointed out that Co-Chair Feige is the author of
Amendment 6.
CO-CHAIR FEIGE explained the intent of paragraph 2 in the
amendment. He said the historical basis for the currently
envisioned in-state gasline goes back to House Bill 369 where
AGDC was tasked with the mission of coming up with the most
economic pipeline, not necessarily the one with the most
economic benefits to the citizens of Alaska. Inserting the
second paragraph would ensure that regardless of where a
pipeline is built - whether it goes directly to the Anchorage
Bowl, or Valdez, or Bethel - the AGDC is tasked, as soon as the
pipeline is under construction, with investigating additional
lines that will distribute gas to as much of the state as is
economically feasible.
2:00:59 PM
CO-CHAIR FEIGE advised he would like to make some small changes
to the amendment. He moved to adopt Conceptual Amendment 1 to
Amendment 6 as follows:
Page 1, line 14:
Delete "potential"
Insert "additional"
CO-CHAIR SEATON [objected for purposes of discussion]. There
being no discussion, he removed his objection. There being no
further objection, Conceptual Amendment 1 to Amendment 6 was
adopted.
2:02:18 PM
CO-CHAIR FEIGE moved to adopt [Conceptual] Amendment 2 to
Amendment 6 as follows:
Page 1, line 21:
Delete "a connecting line"
Insert "an additional natural gas pipeline"
CO-CHAIR SEATON objected for purposes of discussion. There
being no discussion, he removed his objection. There being no
further objection, [Conceptual] Amendment 2 to Amendment 6 was
adopted.
CO-CHAIR SEATON removed his objection to Amendment 6. There
being no further objection, Amendment 6, as amended, was
adopted.
2:04:15 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 7, labeled 27-
LS0075\U.12, Bullock, 2/13/12, which read [original punctuation
provided]:
Page 3, following line 25:
Insert a new subsection to read:
"(d) In the exercise of its powers under (b) and
(c) of this section, the Alaska Gasline Development
Corporation may not pledge the faith and credit of the
state or a political subdivision of the state other
than the Alaska Gasline Development Corporation to the
repayment of the principal of or interest on any bonds
issued by the Alaska Gasline Development Corporation."
Reletter the following subsections accordingly.
CO-CHAIR SEATON objected for purposes of discussion.
MR. WRIGHT explained that Amendment 7 would put up side boards
to clarify that AGDC does have the responsibility and credit to
issue bonds and that AGDC may not pledge the faith and credit of
the state in doing so. He said this was a concern brought to
the sponsor by the Department of Law and the sponsor concurred
that it was a good amendment to place into the bill.
2:05:05 PM
CO-CHAIR FEIGE inquired whether this would affect the bond
rating that a project could receive.
MR. WRIGHT deferred to a representative from AGDC.
MR. DUBLER replied that Amendment 7 should not impact the rating
on the bonds that AGDC intends to issue. There was never an
intention to issue general obligation bonds of the state. This
was something raised by the Department of Law just to ensure
that AGDC could not sell general obligation bonds. Current
statute does not allow AGDC to sell general obligation bonds
without a vote of the people. Therefore, it is a "belts and
suspenders" kind of thing that lawyers like to see in language
like this.
REPRESENTATIVE HERRON commented that Amendment 7 would not
actually restrict AGDC because the state may have some burdens
on it; so, it essentially frees AGDC from the state.
MR. DUBLER concurred to the extent that the state had a lower
rating. He pointed out that there are no ratings higher than
the state's current AAA rating, so AGDC could not be higher
rated than that. To the extent the state were downgraded in the
future before AGDC came to this issuance, and this issuance is
based on the shippers of the line, it could be rated higher than
the state.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 7 was adopted.
2:07:07 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 8, labeled 27-
LS0075\U.21, Bullock, 2/15/12, which read [original punctuation
provided]:
Page 2, lines 15 - 16:
Delete "to acquire land under AS 09.55.240 -
09.55.460"
Insert "or file a declaration of taking under
AS 09.55.240 - 09.55.460 to acquire land or an
interest in land that is necessary for an in-state
natural gas pipeline; the exercise of powers by the
Alaska Gasline Development Corporation under this
paragraph may not exceed the permissible exercise of
the powers by the state"
Page 4, line 8:
Delete "has the meaning"
Insert "and "natural gas pipeline" have the
meanings"
Page 6, line 17, following "a":
Insert "natural gas"
Page 6, line 18, following "state":
Insert ";
(3) "natural gas pipeline" means all the
facilities of a total system of pipe for
transportation of natural gas for treatment or
conditioning, delivery, storage, or further
transportation, and including all pipe, pump and
compressor stations, station equipment, and all other
facilities used or necessary for an integral line of
pipe to carry out the transportation of the gas"
Page 11, line 25:
Delete "AS 42.06.630"
Insert "AS 38.34.099"
CO-CHAIR SEATON objected for purposes of discussion.
2:07:21 PM
MS. DELBRIDGE explained that Amendment 8 is housekeeping. The
Department of Law recommended that parameters be set on AGDC's
ability to exercise eminent domain. The intent of the amendment
is to keep that ability to exercise eminent domain directly
related to AGDC's other empowerments to work on in-state gas
pipeline projects. It is similar to language that other state
entities enjoy with their ability to use eminent domain that is
in strict relation to their duties.
2:08:17 PM
CO-CHAIR SEATON surmised that this means AGDC would not be
taking eminent domain on buildings in Anchorage.
MS. DELBRIDGE responded that AGDC certainly should not be and
read the provision on page 1, lines 3-6, of Amendment 8. She
said another part of Amendment 8 relates to the definitions that
are used throughout HB 9; a definition of "in-state natural gas
pipeline" is already in the bill. Section 13 of the bill uses
the term "natural gas pipeline" which needed to be defined in
that section. Where it is defined in Section 13, a statute is
referenced that comes under AS 42.06, the regulatory statute for
the Pipeline Act, which later in the bill this kind of a project
is exempted from. The Department of Law recommended that it
would be much cleaner to redefine "natural gas pipeline"
specifically within this legislation. She read the definition
included in Amendment 8, page 1, lines 17-21. She said
Amendment 8 also has three citations for conforming the putting
of this definition in statute instead of referencing the AS
42.06 natural gas pipeline definition.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 8 was adopted.
2:11:06 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 9, labeled 27-
LS0075\U.20, Bullock, 2/15/12, which read [original punctuation
provided]:
Page 4, following line 7:
Insert a new subsection to read:
"(e) If commitments to acquire firm
transportation capacity are received in an open season
conducted by the Alaska Gasline Development
Corporation, the Alaska Gasline Development
Corporation shall, within 10 days after executing the
commitments, report the results of the open season to
the president of the senate and the speaker of the
house of representatives and inform the public of the
results of the open season through publication on the
Internet website of the Alaska Gasline Development
Corporation and in a press release or other
announcement to the media. The results made public
must include the name of each prospective shipper, the
amount of capacity allocated, and the period of the
commitment."
Reletter the following subsection accordingly.
CO-CHAIR SEATON objected for purposes of discussion.
2:11:23 PM
MR. WRIGHT stated Amendment 9 is being offered by the sponsor in
response to committee concerns. It would place conditions on
what is to be released 10 days after firm transportation
commitments or precedent agreements are signed between shippers
and AGDC. This is derived from Federal Energy Regulatory
Commission (FERC) rules governing inter-state pipeline open
seasons. The information that is to be released is the name of
each prospective shipper, the amount of capacity allocated, and
the period of commitment.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 9 was adopted.
2:12:46 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 10, labeled
27-LS0075\U.16, Bullock, 2/14/12, which read [original
punctuation provided]:
Page 5, line 16:
Delete "information protected by a
confidentiality agreement to that public agency"
Insert "confidential information"
CO-CHAIR SEATON objected for purposes of discussion.
2:12:57 PM
MR. WRIGHT explained that Amendment 10 is clarifying language
from the Department of Law. The provision within the amendment
would apply to all confidential information; AGDC would then be
able to enter into confidential agreements, particularly with
public agencies.
MS. DELBRIDGE read the current language in Version U on page 5,
lines 14-16, which states that AGDC "may enter into
confidentiality agreements with a public agency, as defined in
AS 40.25.220, to allow release of information protected by a
confidentiality agreement to that public agency." Amendment 10
would allow the release of confidential information within the
confidentiality agreements that AGDC can have with a public
agency, rather than the current language which would allow only
information protected by a confidentiality agreement to that
public agency.
2:15:01 PM
CO-CHAIR SEATON understood the effect of Amendment 10 would be
that AGDC could enter into a confidentiality agreement, but as
part of that confidentiality agreement there could be agreement
to release that information.
MS. DELBRIDGE responded that AGDC could enter into
confidentiality agreements with a public agency and, within
that, [AGDC] could release confidential information within the
agreement to [the agency].
CO-CHAIR SEATON asked whether this would mean, for example, that
AGDC could release confidential information from a shipper to an
agency or that it could be publically released.
MS. DELBRIDGE replied it would not be publicly released. If
AGDC had a confidential agreement outside of this part with a
shipper, that agreement would have to allow for the further
release of information by AGDC to a public agency. For example,
if AGDC has technical data or field study information that it
holds confidential but would like to share with an agency such
as DNR, Amendment 10 would allow AGDC to enter into a
confidentiality agreement with DNR so it could share that
confidential information with that agency.
2:16:42 PM
CO-CHAIR SEATON understood it would be agency to agency. It
would be confidential information that AGDC would share with
another agency, but the information would remain confidential to
the secondary agency that AGDC has an agreement with.
MS. DELBRIDGE concurred and said that Amendment 10 would allow
the sharing of information that is held confidential between
AGDC and a public agency.
REPRESENTATIVE HERRON commented that the Department of Law is
essentially saying that there is currently a barn door in the
bill and the amendment sizes it down to a small window.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 10 was adopted.
2:18:06 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 11, labeled
27-LS0075\U.19, Bullock, 2/14/12, which read [original
punctuation provided]:
Page 18, line 30, following "41.41.040,":
Insert "41.41.050,"
CO-CHAIR SEATON objected for purposes of discussion.
MR. WRIGHT explained that Amendment 11 would add to the section
of repealers and would repeal AS 41.41.050 because that statute
would no longer be necessary with the transition of ANGDA to the
AHFC board of directors. This was an oversight, he continued,
because the repeal should have been included in the sponsor's
first list of repealers.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 11 was adopted.
2:19:00 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 12, labeled
27-LS0075\U.15, Bullock, 2/14/12, which read [original
punctuation provided]:
Page 5, line 4:
Delete "except for the covenants in
AS 38.35.120(a)(1), (2), (5), and (7),"
Page 5, line 6, following "AS 38.35.120":
Insert ", except for the covenants in
AS 38.35.120(a)(1), (2), (5), and (7)"
CO-CHAIR SEATON objected for purposes of discussion.
MS. DELBRIDGE explained that Amendment 12 is clarifying language
suggested by the Department of Law. The amendment would re-
order the sentence by moving the starting clause in Section 5,
paragraph (3), to the end of the paragraph. Paragraph (3) says
that the corporation that submits this application for a right-
of-way lease agrees to be bound by the right-of-way lease
covenants set out in the general Right-of-Way Leasing Act,
except for several of those covenants. Those covenants are
covenants requiring common carriage and, in conjunction with
that, covenants requiring a line to provide connections as
determined by the RCA under the Pipeline Act and requiring other
cooperation with RCA orders that as a contract carrier they
would not be subject to.
2:20:47 PM
CO-CHAIR SEATON, regarding interconnections on a gas pipeline,
inquired whether there is language somewhere in the bill or in
the general requirements and purpose of AGDC that provides a
mechanism for making take-off points available to communities
along the pipeline, given that the RCA would not be involved.
MS. DELBRIDGE replied that that would be part of the negotiation
when there is a shipper that has arranged for capacity for gas
to that community. Within this bill, the RCA is not in a
position to unilaterally mandate that off-takes be arranged at
places where there are no customers.
2:21:53 PM
CO-CHAIR SEATON requested Mr. Dubler to address this question.
MR. DUBLER directed attention to Amendment 6, labeled 27-
LS0075\U.28, Bullock, 2/23/12, and said that HB 9, as amended,
would direct AGDC, upon commencement of a line, to look at
additional communities for connection and where connection would
make sense. Therefore, AGDC would not sit back and wait for the
communities, AGDC would go out and find communities that want to
hook up to the pipeline.
CO-CHAIR SEATON said he wants to ensure that there is not
testimony that a pipeline will be built right by a community but
that that community will not be getting service. He offered his
belief that everybody's goal here is to get gas for Alaskans and
he wants it on the record that the aforementioned will transpire
and is part of AGDC's mission in constructing the natural gas
pipeline.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 12 was adopted.
2:23:50 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 13, labeled
27-LS0075\U.27, Bullock, 2/23/12, which read [original
punctuation provided]:
Page 6, lines 21 - 22:
Delete "for covenants that do not apply to a
lease entered into under AS 38.34.050(c)"
Insert "that, for a lease entered into under
AS 38.34.050(c), the covenants in AS 38.35.120(a)(1),
(2), (5), and (7) may not be included"
CO-CHAIR SEATON objected for purposes of discussion.
MS. DELBRIDGE explained that Amendment 13 would make conforming
changes to Section 8 related to the changes that were just made
in Section 5. This amendment for sentence structure was
suggested by the Department of Law to add clarity. The intent
is that the commissioner of DNR shall include in a conditional
lease each requirement and condition of the covenants
established under Alaska's Right-of-Way Leasing Act, except for
those that are entered into already per Section 5 an AGDC
specific one that exempts a few covenants.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 13 was adopted.
2:25:24 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 14, labeled
27-LS0075\U.24, Bullock, 2/22/12, which read [original
punctuation provided]:
Page 19, following line 1:
Insert a new bill section to read:
"* Sec. 32. The uncodified law of the State of
Alaska is amended by adding a new section to read:
TRANSITION AND LEGISLATIVE INTENT. It is the
intent of the Alaska Legislature that a right-of-way
lease subject to AS 38.34.050(c), as amended by sec. 5
of this Act, AS 38.35.100(d), as amended by sec. 8 of
this Act, AS 38.35.120(a), as amended by sec. 9 of
this Act, and AS 38.35.120(b), as amended by sec. 10
of this Act, that is entered into between the
commissioner of natural resources and the Alaska
Gasline Development Corporation, a subsidiary created
under AS 18.56.086, before the effective dates of
secs. 5 and 8 - 10 of this Act be amended as soon as
practicable after the effective dates of secs. 5 and 8
- 10 of this Act to conform to the requirements of
AS 38.34.050(c), as amended by sec. 5 of this Act,
AS 38.35.100(d), as amended by sec. 8 of this Act,
AS 38.35.120(a), as amended by sec. 9 of this Act, and
AS 38.35.120(b), as amended by sec. 10 of this Act."
Renumber the following bill sections accordingly.
CO-CHAIR SEATON objected for purposes of discussion.
2:25:42 PM
MS. DELBRIDGE explained that Amendment 14 relates to right-of-
way leasing and that AGDC has a right-of-way lease from DNR.
That lease specifically contemplated the potential of statutes
down the road that would make AGDC exempt from some covenants
that are in the lease today. What needs to be done related to
these Section 5 exemptions for right-of-way leases is add a new
Section 32 that calls on the parties to this existing lease to
amend it upon passage of HB 9. The Alaska State Constitution
bars the Alaska State Legislature from passing laws that apply
retroactively to contracts already in place. Therefore,
exempting AGDC in Section 5 would not necessarily change the
lease without the legislature's direction to also do so.
Amendment 14, then, expresses that intent that the parties to
the lease amend the lease. The sponsors have received
assurances from the Department of Law, which has attorneys
assigned to DNR, that the parties will be amenable to amending
the lease as requested by the intent of the legislature.
2:27:12 PM
MS. DELBRIDGE, in response to Co-Chair Seaton, confirmed that
the aforementioned relates to right-of-way leases. She said
AGDC and DNR entered into a right-of-way lease in June/July
2011. That lease was per the existing state Right-of-Way
Leasing Act, so the covenants related to common carriage would
still apply. In the covenant section of the lease it was
foreseen that a situation might arise like today where it is
desired to exempt AGDC from operating as a common carrier under
the Right-of-Way Leasing Act. Thus, the lease includes language
with the covenants indicating unless specifically exempted by
law, these covenants apply. Section 5 would exempt AGDC from
the covenants of the state Right-of-Way Leasing Act related to
common carriage. However, there is a lease in place, and the
sponsors want to use the transitional language presented in
Amendment 14 to express the intent of the legislature that the
exemptions it is now offering AGDC from common carriage
requirements be immediately reflected as an amendment to the
lease that AGDC has already entered into with DNR. She
reiterated that the state constitution disallows passing a law
that retroactively applies to a contract already in place;
therefore, the transition expressing the legislature's intent on
that is important.
REPRESENTATIVE HERRON surmised that this is as close to "shall"
as possible.
MS. DELBRIDGE answered yes.
2:28:51 PM
CO-CHAIR SEATON pointed out that the committee has been
considering this mainly in relationship to an in-state gas
pipeline servicing mines and other things. He inquired whether
this would negate the Alaska Gasline Inducement Act (AGIA)
requirement of rolled-in rates and other provisions if AGDC was
involved with the large diameter line from the North Slope to
Valdez as an export LNG facility, or would this be simply to
right-of-way leases and not to operations and other requirements
of the AGIA pipeline.
MS. DELBRIDGE replied it is difficult to say precisely because
it is unknown whether a future large-diameter pipeline to Valdez
will be built under AGIA. However, under the aforementioned
hypothetical circumstance, if the pipeline is built under AGIA,
AGIA is the law of the land and would pre-empt what is being
done here. At that point, AGDC's most likely role would be
perhaps building the spur line to connect other communities to
this main transportation line that is also an export line.
This, however, relates specifically to right-of-way leases to
AGDC.
2:30:40 PM
CO-CHAIR SEATON said he wants to ensure that this is clear so it
cannot be said at a later date that provisions previously set by
the legislature are being circumvented by requiring that
something be modified. It is very clear, he continued, that it
is right-of-way leases that are being talked about here, not
operations of AGIA.
MS. DELBRIDGE concurred. She said AGIA is statute, but a
contract is also attached. She offered her belief that that
contract stands legally and cannot be changed without the
parties agreeing to do so.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 14 was adopted.
2:32:02 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 15, labeled
27-LS0075\U.25, Bullock, 2/22/12, which read [original
punctuation provided]:
Page 16, line 28, through page 18, line 19:
Delete all material and insert:
"* Sec. 25. AS 42.05 is amended by adding a new
section to read:
Sec. 42.05.433. Review of certain contracts by
the commission. (a) A public utility negotiating a
contract with the Alaska Gasline Development
Corporation created under AS 18.56.086, or with any
entity controlled by the Alaska Gasline Development
Corporation, may submit the contract to the commission
before the contract takes effect.
(b) A public utility negotiating to purchase
natural gas to be shipped on any pipeline owned by
either the Alaska Gasline Development Corporation or
an entity controlled by the Alaska Gasline Development
Corporation may submit the contract to the commission
before the contract takes effect.
(c) A public utility negotiating a natural gas
storage contract related to (a) or (b) of this section
may submit the contract to the commission before the
contract takes effect.
(d) The commission may conduct an investigation
and hearing to determine whether a contract submitted
under (a), (b), or (c) of this section is just and
reasonable. The commission shall either approve the
contract as presented, or, if the commission finds
that the contract is unjust, unreasonable, or unduly
discriminatory or preferential, the commission shall
disapprove the contract. If the commission does not
act within 180 days after the submission of the
contract, the contract shall be considered approved
and shall be implemented. A contract that is approved
or considered approved under this subsection is not
subject to further review by the commission.
* Sec. 26. AS 42.05.711 is amended by adding a new
subsection to read:
(s) The Alaska Gasline Development Corporation
created under AS 18.56.086, a joint venture,
partnership, or other entity controlled by the Alaska
Gasline Development Corporation, or a natural gas
pipeline owned or financed by the Alaska Gasline
Development Corporation is exempt from this chapter
until all debt incurred to finance or refinance the
cost of developing and constructing the natural gas
pipeline is paid in full. However, the Alaska Gasline
Development Corporation or a joint venture,
partnership, or other entity that includes the Alaska
Gasline Development Corporation may elect to be
subject to regulation under this chapter to the extent
and in the manner the Alaska Gasline Development
Corporation elects and determines is appropriate.
* Sec. 27. AS 42.06 is amended by adding a new
section to article 7 to read:
Sec. 42.06.601. Exemption. The Alaska Gasline
Development Corporation created under AS 18.56.086, an
entity controlled by the Alaska Gasline Development
Corporation, or a natural gas pipeline owned,
operated, financed, or controlled, in whole or in
part, by the Alaska Gasline Development Corporation is
not subject to this chapter except to the extent and
in the manner the Alaska Gasline Development
Corporation elects and determines is appropriate."
Renumber the following bill sections accordingly.
CO-CHAIR SEATON objected for purposes of discussion.
2:32:10 PM
MS. DELBRIDGE explained that Amendment 15 would replace Sections
25-28, which deal with RCA oversight. Amendment 15 would allow
RCA oversight of public utility contracts related to this
gasline. Public utilities already have the option of seeking
pre-approval from the RCA when they commit to large projects or
purchases that are a significant financial investment for them.
They seek that pre-approval to ensure that the RCA is giving a
general okay that the utility will be able to cover those costs
later in the rates that it charges its customers. Amendment 15
specifically states that the public utilities negotiating
contracts with AGDC can submit these contracts to the commission
for pre-approval. Should the RCA find the contract to be
unjust, unreasonable, or unduly discriminatory, it can disprove
that contract. The amendment would set some sidebars on this
because a contract with a utility would occur after an open
season when there is a precedent agreement or a conditioned
agreement for capacity on this pipeline. All those conditions
must be worked out over a period of two years so that solid,
firm agreements can be brought forth to get financing and build
the project. During that two-year window, the RCA would be able
to review a contract over a period of 180 days and decide
whether the contract is acceptable. If not, the utility and the
carrier could renegotiate to work out the difference.
2:34:18 PM
CO-CHAIR SEATON understood that a contract with a utility would
not be available until after the precedent agreements. Once the
contract was submitted to the RCA, the RCA would have 180 days
to make a final decision; otherwise the contract will be
presumed just and reasonable. During the time that the
precedent agreements were being negotiated there would not be
anything to present to the RCA. He therefore surmised it would
be when a utility enters into a contract, which has the rates
and costs, that it would be submitted to the RCA.
MS. DELBRIDGE answered yes. With a gasline like this, a public
utility might actually go into the open season itself and
subscribe to capacity itself. Or, it could be a utility that
has an agreement to purchase gas that someone else is committing
to cover that line capacity for. Amendment 15 would allow
utilities that are negotiating to purchase to take the terms to
the RCA for pre-approval before they sign the firm
transportation commitment or before their shipper does. So, the
utilities would have a basic agreement that specifies the terms
and rates if the conditions are worked out, including, likely,
this RCA pre-approval.
2:36:03 PM
CO-CHAIR SEATON requested Ms. Delbridge to review the reasons
why most utilities would want to submit to the RCA.
MS. DELBRIDGE explained that when a utility undertakes a big
financial investment, whether it is committing to decades of
shipping gas in a pipeline or building a new power plant, that
utility must have some assurance from the RCA - which regulates
the rates the utility can charge - that it will be able to
recover the costs of those investments in the rates that it will
charge to its customers.
REPRESENTATIVE HERRON asked whether the 180-day time period is a
commonly used length of time.
MS. DELBRIDGE replied that 180 days seemed like a comfortable
window for AGDC. The terms of an agreement with a utility would
be generally known at the point that a precedent agreement is
signed. Once precedent agreements are signed it will take a
period of time to iron out all the conditions in those
agreements to where the utility is willing to sign a firm
transportation commitment. It was felt by AGDC that a 180-day
window would be appropriate and would also fit within that time
slot so that RCA approval of what a utility wants to do to
participate would not hold up the project's financing or the
project's construction, but would still provide an ample
regulatory window.
2:38:12 PM
REPRESENTATIVE HERRON inquired whether someone could pause the
clock on the 180 days.
MS. DELBRIDGE responded that a provision to pause the clock has
not been included.
REPRESENTATIVE HERRON clarified that his concern is whether
others could pause the clock, not necessarily AGDC.
MS. DELBRIDGE offered her understanding that unless it is
implicitly provided, the 180 days after the submission of the
contract is what stands. She said she will double-check this,
however.
CO-CHAIR SEATON recalled that in previous committee discussions
a provision was talked about for AGDC to pause the clock or to
ask for an extension. After wrestling with the entire scenario,
AGDC decided that if RCA was not making the decision by the 180
days then the request could be withdrawn; AGDC did not want to
get into the situation where there were pressures to not make a
decision or leverage people to put in a request for a pause to
extend the time period.
2:40:01 PM
CO-CHAIR FEIGE noted that Version U, as amended, would allow
AGDC to essentially be a contract carrier. He asked whether as
a contract carrier those contracts would automatically be
subject to review by the RCA.
MS. DELBRIDGE replied that as a contract carrier there is no
clear RCA oversight of the contracts; therefore, things have
been specifically structured so that public utilities with
contracts are given that additional layer of comfort.
2:40:50 PM
CO-CHAIR FEIGE observed that lines 7, 11, and 14 of Amendment 15
state that a public utility "may" submit the contract to the
RCA. He pointed out that if, as part of the contract, the
tariff is made a significant portion of the cost of the gas the
value of that gas is lowered at the point of production, which
is the point where the state taxes the gas. This could be seen
by a shipper as a way to lower the value of the gas and hence
the tax that the shipper pays on the gas, while the shipper
collects that revenue as a tariff instead of as a cost for the
gas itself. He therefore inquired why the language is "may"
instead of "shall".
MS. DELBRIDGE responded that the provisions in Section 25 on
page 1 of Amendment 15 relate to public utilities and the RCA
consideration of this as pre-approval is something that the
utilities can use to protect themselves from precisely that sort
of scenario. Right now a public utility has the option of
seeking pre-approval from the RCA; the sponsors did not think it
appropriate in HB 9 to start requiring public utilities to seek
pre-approval of those contracts. The sponsors realize that the
public utilities in the state vary in size and in priorities and
whether to seek RCA pre-approval needs to be a decision that the
utilities are left with. However, the sponsors wanted to ensure
that it was clearly and specifically enabled as a way for the
RCA to take a look at the kinds of terms that these utilities
would be signing on for.
2:43:09 PM
CO-CHAIR FEIGE reiterated that the utilities would not be
required to request a review by the RCA and said that a
utility's interest is the price of the gas as it goes into the
turbine. Therefore, he is looking at how to protect the
interest of the state and the interest of the tax revenue going
to the state.
MS. DELBRIDGE replied that her answer will be in two parts, with
one part not meant to dodge the very legitimate concern of how
to protect the state, its resource, and its revenue. She said
it is unknown exactly how gas off the North Slope is going to be
taxed in the future. The sponsors have a conceptual amendment
to Amendment 15 that would require the RCA to review the rate of
return on equity to pipeline owners. The intent of the sponsors
to keep this line unencumbered by regulation as a public
utility, which it would not be, or as a common carrier, which it
would not be. The conceptual amendment would allow for some
level of assurance that the tariffs and the rate of return are
not something where Alaska is getting taken. The public
utilities and the ratepayers would be protected through Section
25 and through the conceptual amendment to Amendment 15. The
conceptual amendment would protect that broader interest by
having RCA specifically consider the rate of return that the
pipeline owners would get on this project. Conceptually, the
sponsors would like for that rate of return on equity to be
within the range of rate of return that is normal and customary
for a large transportation gas pipeline in the United States.
While there is nothing in the U.S. quite comparable to what will
hopefully be seen someday in Alaska, the sponsors propose that
the rate of return for this line be within the FERC standard of
acceptable rate of return. The RCA would be given a window of
180 days once an application is submitted to consider whether
the rate of return is within this range and then certify the
application yes or no. She said she believes that that would
help ensure that whatever the tariff the overall rate of return
would not be detrimental to the state's take on its share of the
gas resource should producers be the ones owning this line.
2:46:18 PM
CO-CHAIR SEATON noted that the aforementioned conceptual
amendment is being handed out to committee members, but urged
that it be dealt with after consideration of Amendment 15.
CO-CHAIR SEATON, in regard to the provision of subsection (d) of
Section 25 in Amendment 15, asked whether subsections (a-c)
would restrict petitioning for a review of a contract to the
utility itself; in other words, ratepayers would be disallowed
from making such a request independent of the utility itself.
MS. DELBRIDGE answered that Amendment 15 specifically refers to
public utilities, so it is specifically a public utility that
can take a request for pre-approval to the commission. The RCA
is, by nature, designed to regulate and provide oversight of the
rates charged to ratepayers when it holds hearings and
proceedings on a pre-approval or rate case. Since ratepayers
participate in that process, the ratepayer would have some say
if a utility brings a request for pre-approval to the
commission.
2:48:25 PM
CO-CHAIR SEATON understood that the public and ratepayers could
not bring forward an issue of a contract if they thought the
contract unreasonable; it would have to be brought forward by
the utility itself that is purchasing the gas.
MS. DELBRIDGE said that is her understanding and added that
Amendment 15 does not specifically allow that. She deferred to
a representative of AGDC to provide a definitive answer as to
whether ratepayers themselves could present a case to the RCA
for pre-approval.
TINA GROVIER, Attorney, Natural Resources and Energy Law, Birch
Horton Bittner & Cherot, Counsel to Alaska Gasline Development
Corporation (AGDC), understood that the question being asked is
whether a ratepayer would have recourse if the utility did not
take advantage of the language contained in subsections (a-c) of
Section 25 in Amendment 15. She said she thinks a ratepayer
would because for a utility to recover the expenses it would
need to file a rate case asking for those costs to be included
in its rate base and at that time a ratepayer could go in and
argue for whatever reasons that the cost was imprudently
incurred. It is precisely to prevent that from happening that
utilities would want to go to the RCA ahead of time.
2:50:49 PM
CO-CHAIR SEATON surmised that, in essence, if a utility decided
not to apply then the 180-day clock would go away; however,
ratepayers would still have the ability to petition not to have
to pay full compensation of the tariff that the utility proposes
to apply because it would make the rate paid for the gas and
tariff unreasonable.
MS. GROVIER replied correct, whatever was the particular
contract at issue.
2:51:53 PM
REPRESENTATIVE P. WILSON observed that subsections (a-c) of
Section 25 in Amendment 15 would provide that the public utility
negotiating the contract "may" submit the contract to the RCA,
"may" meaning if the utility wants to. She further observed
that subsection (d) would provide that the RCA "may" conduct an
investigation. She asked whether this means that a utility
could ask for an investigation but the RCA could choose whether
it will or will not investigate.
MS. DELBRIDGE responded that she does not know what the RCA
currently has in place, but she suspected that if someone
submits an application for pre-approval the commission does
absolutely consider that. However, whether it decides that an
investigation and a hearing are warranted in each specific case
may be something that is left to the RCA's discretion.
REPRESENTATIVE P. WILSON said that is her concern because in
this circumstance the utility would want to get some assurances,
but the commission would not have to deal with it if it did not
want to. She observed that [subsection (d), line 18,] states
that the commission "shall" approve the contract and asked
whether the language [on line 16] should be changed so that the
commission "shall" conduct an investigation.
MS. DELBRIDGE answered that the sponsors would be open to that.
2:54:20 PM
REPRESENTATIVE P. WILSON moved Amendment 1 to Amendment 15 as
follows:
Page 1, line 16, after "commission":
Delete "may"
Insert "shall"
REPRESENTATIVE P. WILSON stated that this would give the public
utility some assurance before it proceeds.
CO-CHAIR SEATON objected for discussion purposes and offered his
agreement that public utilities need the protection that the RCA
will review the contracts to provide assurance to the utilities
that the contracts are just and reasonable. Things would be
left in limbo if that did not happen.
MR. WRIGHT countered that if the RCA feels the rates are not
just or reasonable, it may conduct an investigation anyway.
Putting in "shall" would require the RCA to look at every
contract. Most contracts may be just and reasonable and
subsection (d) would provide the authority to the RCA to look at
any contracts that it does not believe to be just and
reasonable.
2:56:10 PM
CO-CHAIR SEATON clarified that the "may" for submission of
contracts is not being changed; rather, it is being said that if
someone submits a contract the RCA "shall" conduct a hearing.
MR. WRIGHT replied that he understands that, but reiterated that
if the RCA does not feel it is just and reasonable it already
has the right to look into the contract under this provision.
MS. DELBRIDGE added she does not suppose that there would be a
problem with changing the wording to "shall" so that the RCA is
required to respond to a utility's submission of a request for
review.
CO-CHAIR SEATON said what is being looked for here is to require
that if the utility submits, then the RCA must give some
assurance to the utility by conducting a hearing and
investigation within the 180-day time period.
CO-CHAIR SEATON removed his objection. There being no further
objection, Amendment 1 to Amendment 15 was adopted.
2:57:47 PM
CO-CHAIR SEATON announced that a committee substitute (CS) would
be drafted after all amendments are considered and that the
committee would take up the CS at its next meeting.
MS. DELBRIDGE returned to her explanation of Amendment 15,
moving to the amendment's provisions on page 2. She explained
that currently the RCA can regulate a pipeline either as a
public utility under AS 42.05, the Alaska Public Utilities
Commission Act, or as a common carrier pipeline under the
Pipeline Act. [Under Section 26] the sponsors propose that a
pipeline that AGDC owns, finances, or is in a partnership with
but controls, would be exempt from RCA regulation as a public
utility; the sponsors do not believe that this kind of a gasline
is a public utility. The sponsors also propose in Section 27 to
exempt an AGDC line from RCA regulation as a common carrier
under the Pipeline Act. The sponsors do not believe that a gas
pipeline is going to be able to operate as a common carrier.
The sponsors believe it is going to be required to sign long-
term contracts negotiated with individual shippers and therefore
the pipeline should not be regulated as a common carrier.
CO-CHAIR SEATON surmised that if it is in conjunction with an
AGIA pipeline this would not override the provisions of the AGIA
pipeline.
MS. DELBRIDGE concurred.
2:59:50 PM
CO-CHAIR SEATON moved to adopt Conceptual Amendment 2 to
Amendment 15, written as follows [original punctuation
provided]:
Add a new section after Section 27, Page 2, Line 19:
The RCA shall review the rate of return on equity to
pipeline owners. The rate of return on equity must be
within the range of rates of return on equity commonly
accepted for natural gas transportation pipelines of a
similar nature in the United States. If the
commission does not act within 180 days after the
submission of an application by equity owners, the
rate of return on equity shall be considered approved
and shall be implemented. An application that is
approved or considered approved under this section is
not subject to further review by the commission.
3:01:02 PM
REPRESENTATIVE P. WILSON objected for purposes of discussion.
Regarding "commonly accepted for natural gas transportation
pipelines of a similar nature in the United States", she asked
whether there are any similar pipelines in the United States.
MS. DELBRIDGE responded that anything done in Alaska is going to
be unique. She said the sponsors' intent with that language is
that this would be comparable to a large gas transportation
pipeline, and the sponsors want to qualify that as similar.
While there are lots of distribution pipelines that individual
utilities might own, the sponsors do not feel that those are
comparable.
3:01:58 PM
CO-CHAIR SEATON inquired why the conceptual amendment states
return on "equity" rather than "tariff". He further asked that
since natural gas pipelines are defined as all ancillary things,
such as compressors, conditioning plants, and so forth, how that
works into this amendment as opposed to tariff.
MS. DELBRIDGE answered that the sponsors chose not to use a
tariff. She said the concern prompting this conceptual
amendment was that, absent regulation as a public utility or
common carrier, there would be little oversight for a project
that may include state support. If the state was going to be
supporting a public project like this, then the state needed
some level of assurance from some independent authority that the
owners of this line, of which AGDC might only be one of several,
are not earning a rate of return that is exorbitant. Because of
that state support there is a need for some degree of oversight.
The sponsors have worked very hard to keep politics out of what
happens in the future with this project, she continued. To that
end, the sponsors felt that the RCA, as an independent
regulatory body, would be very well suited to evaluate something
like the rate of return that the pipeline owners will get on
this project. The rate of return is something that the pipeline
owners will get for the entire project, but the tariffs may
vary. With a contract carrier, tariffs may be different for
different customers because some customers will want to
subscribe to only a very small part of the pipeline while others
may want to subscribe to a larger part. Therefore, looking at
all those tariffs independently would not provide a clear
overall picture that the pipeline owners as a whole are not
getting an exorbitant rate of return on a project that the state
is helping to support.
3:04:17 PM
CO-CHAIR SEATON reiterated that the definition of pipeline
includes compressor stations, conditioning plants, and so forth,
so the rates of return are going to be just and reasonable
compared to other similar pipelines and operations that are
regulated either by FERC or an RCA-type entity. Protection of
the public is what is being looked at for a subsidized pipeline
where the state is investing money to keep the tariff low. He
further noted that a contract carrier is something that has not
been exempt from RCA regulation in the past.
REPRESENTATIVE P. WILSON removed her objection to the conceptual
amendment. There being no further objection, Conceptual
Amendment 2 to Amendment 15 was adopted.
3:06:14 PM
CO-CHAIR SEATON removed his objection to Amendment 15. There
being no further objection, Amendment 15, as amended, was
adopted.
Co-Chair Seaton held over HB 9, noting that public testimony
would be taken once the proposed committee substitute (CS)
incorporating the amendments is before the committee.
3:06:57 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:07 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 |
| 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 |
| CSHB289 version I 2 21.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB289 version A.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| Explanation of Changes version A to Version I 2.22.12.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB 289 Sponsor Statement.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| Sectional Analysis for HB 289.I 2.21.12.docx |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DOA-AOGCC-2-3-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DOR-TAX-02-20-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DCCED-RCA-02-03-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| SB 154 - Fuel Price Comparison.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| U.12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.15.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.16.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.19.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.20.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.21.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.24.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.25.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Shipper vs. Pipeline Builder Conflicts material from ANGDA.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Additional ANGDA - AGDC conflict material.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Southwest Alaska Pilots Assn Navigational Comparison LNG Cook Inlet Valdez.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| AGDC response to request for analysis from Pedro van Meurs.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Gov Letter to ANGDA.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 Adopted Amendments.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| ANGTL comment.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 public comment.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.27.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB289-DNR-MLW-02-18-2012.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DNR-DOG-02-18-2012.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| U.28.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB009CS-DOR-AHFC-02-08-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |