Legislature(2007 - 2008)TERRY MILLER GYM
07/13/2008 12:30 PM House RULES
| Audio | Topic |
|---|---|
| Start | |
| HB3001|| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | HB3001 | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RULES STANDING COMMITTEE
SENATE SPECIAL COMMITTEE ON ENERGY
July 13, 2008
12:34 p.m.
MEMBERS PRESENT
HOUSE RULES
Representative John Coghill, Chair
Representative John Harris (AGIA Subcommittee, Chair)
Representative Anna Fairclough
Representative Craig Johnson
Representative Ralph Samuels (AGIA Subcommittee)
Representative Beth Kerttula (AGIA Subcommittee)
Representative David Guttenberg
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Kim Elton
Senator Lyda Green
Senator Lyman Hoffman
Senator Lesil McGuire
Senator Donald Olson
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
Senator Fred Dyson
Senator Thomas Wagoner
MEMBERS ABSENT
HOUSE RULES
All members present
SENATE SPECIAL COMMITTEE ON ENERGY
All members present
OTHER LEGISLATORS PRESENT
Senator Con Bunde; Senator Betty Davis; Senator Johnny
Ellis; Senator Hollis French; Senator Gene Therriault;
Senator Gary Wilken; Senator Lesil McGuire; Representative
Bob Buch; Representative Mike Chenault; Representative
Harry Crawford; Representative Nancy Dahlstrom;
Representative Andrea Doll; Representative Mike Doogan;
Representative Bryce Edgmon; Representative Richard Foster;
Representative Les Gara; Representative Berta Gardner;
Representative Carl Gatto; Representative Max Gruenberg;
Representative Mike Hawker; Representative Lindsey Holmes;
Representative Kyle Johansen; Representative Reggie Joule;
Representative Steve Kawasaki; Representative Wes Keller;
Representative Mike Kelly; Representative Gabrielle LeDoux;
Representative Bob Lynn; Representative Mike Meyer;
Representative Mark Newman; Representative Kurt Olson;
Representative Jay Ramras; Representative Woodie Salmon;
Representative Paul Seaton; Representative Bill Stoltze;
Representative Bill Thomas.
WITNESS REGISTER
Keith Bergner, Lawson Lundell, LLP; Tony Palmer, Vice
President, Alaska Business Development, TransCanada; Donald
Bullock, Attorney, Legislative Legal Services; Tam Cook,
Director, Legislative Legal Services, Legislative Affairs
Agency; Steve Porter, Legislative Consultant, Legislative
Budget and Audit Committee, Legislative Affairs Agency; Dan
Dickinson, Consultant, Tax Division, Department of Revenue;
Pat Galvin, Commissioner, Department of Revenue; Loyola
Keough, Bennett Jones LLP; Bonnie Harris, Senior Assistant
Attorney General, Department of Law.
COMMITTEE CALENDAR
HOUSE BILL NO. 3001
"An Act approving issuance of a license by the commissioner
of revenue and the commissioner of natural resources to
TransCanada Alaska Company, LLC and Foothills Pipe Lines
Ltd., jointly as licensee, under the Alaska Gasline
Inducement Act; and providing for an effective date."
- HEARD AND HELD
SENATE BILL NO. 3001
"An Act approving issuance of a license by the commissioner
of revenue and the commissioner of natural resources to
TransCanada Alaska Company, LLC and Foothills Pipe Lines
Ltd., jointly as licensee, under the Alaska Gasline
Inducement Act; and providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SB3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (S) READ THE FIRST TIME - REFERRALS
06/03/08 (S) ENR
06/03/08 (S) REPORT ON FINDINGS AND DETERMINATION
06/04/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/04/08 (S) Heard & Held
06/04/08 (S) MINUTE(ENR)
06/05/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
06/05/08 (S) Heard & Held
06/05/08 (S) MINUTE(ENR)
06/06/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/06/08 (S) Heard & Held
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06/07/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/07/08 (S) Heard & Held
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06/08/08 (S) ENR AT 1:00 PM TERRY MILLER GYM
06/08/08 (S) Heard & Held
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06/09/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/09/08 (S) Heard & Held
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06/10/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
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06/12/08 (S) ENR AT 10:00 AM FBX Carlson Center
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06/19/08 (S) MINUTE(ENR)
06/20/08 (S) ENR AT 9:00 AM ANCHORAGE
06/20/08 (S) 9am - 5pm - Testimony <Invitation Only>
06/24/08 (S) ENR AT 1:00 PM MAT-SU
06/24/08 (S) Heard & Held
06/24/08 (S) MINUTE(ENR)
06/26/08 (S) ENR AT 1:00 PM KENAI
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07/01/08 (S) BILL CARRIES OVER FROM 3RD SPECIAL SESSION
07/01/08 (S) ENR AT 9:00 AM BARROW
07/01/08 (S) Heard & Held
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07/08/08 (S) ENR AT 1:00 PM KETCHIKAN
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07/09/08 (S) ENR AT 1:30 PM TERRY MILLER GYM
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07/11/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
07/11/08 (S) Joint w/(H) Rules
07/12/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
07/12/08 (S) Joint w/(H) Rules
07/13/08 (S) ENR AT 12:30 AM TERRY MILLER GYM
BILL: HB3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (H) READ THE FIRST TIME - REFERRALS
06/03/08 (H) RLS
06/03/08 (H) WRITTEN FINDINGS & DETERMINATION
06/04/08 (H) RLS AT 9:00 AM CAPITOL 120
06/04/08 (H) Subcommittee Assigned
06/04/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/04/08 (H) Heard & Held
06/04/08 (H) MINUTE(RLS)
06/05/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
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06/14/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
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06/16/08 (H) RLS AT 9:00 AM ANCHORAGE
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06/24/08 (H) RLS AT 1:00 PM MAT-SU
06/24/08 (H) Heard & Held
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06/26/08 (H) RLS AT 1:00 PM KENAI
06/26/08 (H) Heard & Held
06/26/08 (H) MINUTE(RLS)
07/01/08 (H) RLS AT 9:00 AM BARROW
07/01/08 (H) Heard & Held
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07/02/08 (H) BILL CARRIES OVER TO FOURTH SPECIAL SESSION
07/08/08 (H) RLS AT 1:00 PM KETCHIKAN
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07/09/08 (H) RLS AT 1:30 PM TERRY MILLER GYM
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07/09/08 (H) MINUTE(RLS)
07/10/08 (H) RLS AT 8:00 AM TERRY MILLER GYM
07/10/08 (H) Heard & Held
07/10/08 (H) MINUTE(RLS)
07/11/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
07/11/08 (H) House Special Subcommittee on AGIA
07/12/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
07/12/08 (H) House Special Subcommittee on AGIA
07/13/08 (H) RLS AT 12:30 AM TERRY MILLER GYM
ACTION NARRATIVE
CALL TO ORDER
SENATOR CHARLIE HUGGINS called the joint meeting of the
House Rules Standing Committee and the Senate Special
Committee on Energy to order at 12:36:08 PM.
HB 3001-APPROVING AGIA LICENSE
SB 3001-APPROVING AGIA LICENSE
[NOTE: Technical difficulties experienced during the
meeting necessitated recording the meeting to FTR from
Gavel to Gavel. The meeting is recorded in FTR in its
entirety, and the meeting minutes reflect the actual
meeting; however, although the time stamps below will lead
to the correct position in the recording, the time stamps
do not correspond with the actual historical times of the
meeting. For example, the meeting ended at 5:30 p.m. in
real time, while the time stamps say the meeting adjourned
at 4:51 p.m.]
ACTION NARRATIVE
KEITH BERGNER, LAWSON LUNDELL, LLP, BRITISH COLUMBIA,
listed his credentials in aboriginal and Canadian
regulatory law and provided members with a slide
presentation ("The Duty to Consult: What Does It Really
Mean For Project Proponents," Copy on File). He stated that
he is not an advocate for or against any proposed natural
gas pipeline. He was present to give information regarding
any project in relation to Canadian First Nations.
MR. BERGNER described three different areas in Canada:
Areas with no settled claims, areas with historic settled
claims from the 1800 and 1900s, and areas with modern
settlements that have occurred since 1973. The government's
"duty to consult" applies differently in each of those
areas.
12:41:05 PM
MR. BERGNER reviewed Slide 4, mapping various treaties in
Canada, with white sections depicting areas with no
historic settlements. Slide 5 shows the various asserted
claims currently under negotiation in British Columbia.
Slide 6 shows the Yukon Territory and overlapping claims by
neighboring First Nations. A number of the claims have been
settled by modern treaties. He pointed out two unsettled
claims.
MR. BERGNER observed that in 2004 the Canadian Supreme
Court ruled that the Crown (the government of Canada) has a
duty to consult with First Nations before issuing a permit
or license or authorization that has the potential to
adversely impact an asserted claim. This applies to
federal, provincial, and territorial governments; the legal
duty does not extend to third parties such as project
proponents. However, in practice, the proponents have been
carrying the greater share of the burden.
12:46:02 PM
MR. BERGNER returned to Slide 4 and spoke to the green
areas on the map. There is a legal duty to consult where
there is no treaty or settlement. The green areas are
historic treaties established between 1871 and 1923. He
highlighted Treaty No. 8, signed in 1899, that covers the
area known today as Alberta. The treaty says the aboriginal
title to that land is ceded in exchange for certain rights,
including subsistence rights throughout the entire area,
except those tracts that may be taken out for settlement,
mining, lumbering, and other purposes, including oil and
gas. Canadian courts ruled in 2005 that the Crown has an
obligation to consult with First Nations before taking up
land.
MR. BERGNER addressed modern land claims. In central Yukon,
the claims are covered by modern land claim agreements.
These treaties consist of hundreds of pages that detail the
rights and obligations of both First Nations and the
government. They deal extensively with the process of
consultation.
12:51:26 PM
MR. BERGNER pointed out that the court is still considering
the extent of the duty to consult in surrendered, modern
treaty lands.
12:52:19 PM
MR. BERGNER turned to Slide 21. Modern land claims identify
three categories of land. Category A. land is owned,
including surface and subsurface rights. Category B. lands
have surface rights. Slide 23 depicts the Yukon Territory,
with dark gray areas showing settled claims. The orange
areas show where there are no modern land claims. They have
been tentatively identified and temporarily set aside for
future land claims settlements.
12:53:57 PM
MR. BERGNER explained that in Canada there are new legal
obligations on the government that the government has not
figured out how to address. The result in practice has been
that proponents have largely been making agreements, but
not because they have to. The duty to consult is not a duty
to agree. There is no veto for First Nations and no
obligation to reach an agreement, but things go better with
agreement. Project proponents have been attempting to make
project approvals go faster and eliminate litigation by
sidestepping the ambiguous legal standard and negotiating
access or impact benefit agreements.
12:55:47 PM
MR. BERGNER observed that there are a number of common
elements in the agreements: Employment opportunities,
contracting opportunities, and financial considerations are
usually the benefits to First Nations. In exchange, the
project proponent gets legal certainty, the assurance that
the project will not be challenged legally. Communication
is an important component.
12:57:49 PM
MR. BERGNER emphasized that the alternatives to these
agreements are not great: judicial reviews, appeals,
injunctions, and potential delays in getting authorization.
12:58:25 PM
SENATOR FRENCH explained that Mr. Bergner was invited to
testify since he was not aligned with either side. He asked
if First Nations have taxing authority along the proposed
pipeline route.
MR. BERGNER replied that there is taxation authority on
settlement lands in British Columbia and Yukon reserves.
Otherwise, there is no taxation authority. The proposed
natural gas pipeline would not fall on settlement land or
reserves.
1:00:21 PM
SENATOR FRENCH queried the effect of the Alaska Highway on
First Nations claims. He asked if it could hold up the
project.
MR. BERGNER replied that there was ambiguity, but it was
clear that whatever aboriginal rights or title existing on
that land have not been exercised. The prior project, the
Highway or other existing infrastructure, has impacted and
interfered with the exercise of those rights on those
particular pieces of land. By definition, any new project
using that corridor is going to have a lower impact on the
exercise of aboriginal rights. Accordingly, the duty to
consult is lessened.
SENATOR FRENCH questioned the position of TransCanada in
the Yukon or British Columbia compared with other pipeline
builders.
MR. BERGNER reiterated that he does not advocate any
particular project. He said any entity would face
challenges acquiring permits and authorizations. He felt
that TransCanada would have an advantage because of
authorizations they already have, though he could not
estimate how much time that advantage would save.
1:03:43 PM
SENATOR FRENCH queried TransCanada's history in reaching
agreements with First Nations.
MR. BERGNER observed that TransCanada has successfully
managed the challenge to date.
SENATOR FRENCH noted that First Nations issues are
nationwide and not unique to the proposed natural gas
pipeline.
MR. BERGNER agreed.
1:04:55 PM
LOYOLA KEOUGH, BENNETT JONES, LLP, CANADA, explained that
they were requested to review TransCanada's application.
They assessed the challenges the project would encounter
and concluded that TransCanada's timeline is aggressive and
that there are a number of issues that could cause
problems. Bennett Jones estimates that a seven year
timeframe would be needed to complete the regulatory review
and authorization process. He emphasized that Bennett Jones
was not hired to advocate a particular project but to
critically challenge and analyze. He stated that there were
other First Nations challenges.
1:07:48 PM
CHAIR SENATOR HUGGINS asked which timeframe figure was used
by the Department of Revenue.
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE (DOR)
replied that their analysis factored in Bennett Jones'
number. TransCanada's schedule results in first gas in
2018. The DOR estimates first gas based on a range of
probability with a mid-point of 2020 for first gas. He
stated that TransCanada's estimate was aggressive but
within the probability curve.
1:09:45 PM
REPRESENTATIVE GATTO asked if the timeframe could be longer
than seven years.
MR. KEOUGH did not foresee factors that would completely
stop the project. He acknowledged that the economics are
always a risk. Many things would need to go right to meet a
five year timeframe. Experience shows that there will be
delays.
1:12:21 PM
REPRESENTATIVE GATTO asked if TransCanada has a better
chance of succeeding as a western Canadian company.
MR. KEOUGH thought TransCanada had advantages because of
the structure of the Northern Pipeline Act, their size, and
their record, but stated any pipeline company would face
challenges with a project of this magnitude.
1:14:53 PM
REPRESENTATIVE GATTO asked if it was possible for
aboriginal groups to re-claim a specific area in order to
practice "usual rights" to subsistence activities.
MR. BERGNER said no. He explained that the treaty specifies
the ability to continue to practice those rights throughout
the entire Treaty 8 tract. Treaty 8 in particular is a huge
geographic area. The infrastructure and development that
has occurred in it since 1899 has also been large, but
there are still enormous tracts of land where aboriginal
rights are exercised. There is no provision in the treaty
for reclaiming an area and no First Nation has asserted the
ability to do that.
1:16:45 PM
REPRESENTATIVE CISSNA asked if socioeconomic impacts were
addressed in negotiations with First Nations.
MR. BERGNER clarified that there were two on-going sets of
negotiations, First Nations and government, and First
Nations and proponent. Socioeconomic issues play a large
role in both. There have been numerous examples where land
claims settlements have included changes to the regulatory
structure to include First Nations in the regulatory
decision making. This is common in the Northwest
Territories where there are provisions for First Nations to
nominate members to the regulatory board that makes the
decisions. In the negotiations between First Nations and
proponent, those agreements are negotiated, so they can
cover a multitude of topics. Provision is often made for
scholarships or community needs, such as improving soccer
fields. That is not something a regulator can order.
1:20:16 PM
MR. KEOUGH said that agreements have changed over time.
Where First Nations might have looked for employment during
a project, they are now looking for longer lasting
socioeconomic benefits such as infrastructure development.
1:23:46 PM
MR. KEOUGH elaborated that equity ownership has become an
increasingly common request by First Nations. In the
Mackenzie Valley pipeline, the Aboriginal Pipeline Group
had the opportunity for ownership interest. Similar
negotiations are taking place with other planned projects.
MR. BERGNER added that an equity stake has become an
increasingly common request. However, there haven't been
many agreements ultimately providing for equity interests
because it is essentially an investment in the project.
Many First Nations communities, which are small, won't make
such large investments.
1:25:20 PM
SENATOR STEVENS asked if there would be off-take points in
Canada.
TONY PALMER, VICE PRESIDENT, ALASKA BUSINESS DEVELOPMENT,
TRANSCANADA, explained that there were specific provisions
in the Northern Pipeline Act (NPA) that require off-takes
for a number of communities through the Yukon particularly,
in addition to a capital investment.
1:26:36 PM
SENATOR THOMAS observed that land claims have been on-
going. He asked if the rights-of-way were routinely
approved.
MR. BERGNER explained that in settling lands claims it has
been consistently held that third party interests are not
on the table, whether regarding private land, easements, or
other interests on Crown land. TransCanada's existing
right-of-way is not part of the settlement land.
1:28:38 PM
SENATOR THOMAS observed that a new pipeline developer would
have to start the process over.
MR. BERGNER agreed that a new developer would have to go to
the government to acquire rights and access.
1:29:29 PM
SENATOR WIELECHOWSKI referred to Mackenzie Valley project
delays and wondered if TransCanada's project would be
similarly affected.
MR. BERGNER acknowledged the Mackenzie Valley project has
faced numerous challenges leading to significant delays,
including regulatory, First Nations, and negotiating
financial terms with the Crown. He thought any pipeline
project of a similar scale will be compelled to learn from
their lessons.
SENATOR WIELECHOWSKI asked if there were Mackenzie Valley
project regulatory issues that would apply.
MR. BERGNER explained that the Mackenzie Valley project
tried to incorporate a number of regimes and created a
joint review panel. The process was created specifically
for that project; an Alaska pipeline project would not have
to face the same issues.
1:32:44 PM
MR. KEOUGH commented on some of the reasons the Mackenzie
Valley project has taken as long as they have. There were
two separate tracks, the joint review panel dealing with
environmental issues, and the National Energy Board (NEB).
The process took a long time in the early stages. He added
that typically in a project of such magnitude, there would
be a comprehensive filing followed by a written information
request process. In the Mackenzie case, the initial filing
was subjected to substantial questioning by a variety of
parties. The project costs have increased. There are many
factors causing delays.
MR. KEOUGH said that an Alaskan project would have the
advantage of a better model, including provisions for a
single agency to pursue the various approvals and
operations that would be needed at the federal level.
1:36:16 PM
MR. PALMER described differences between the Mackenzie
project and TransCanada's proposed project. The Mackenzie
project began with nothing completed, while TransCanada
already holds a certificate of public convenience and
necessity from the NEB for the Alaska project. The
Mackenzie project had many regional boards as well as being
regulated by the NEB, while TransCanada has a singe
regulatory agency specifically designed and legislated for
the project. In the Mackenzie project, much of the land was
owned by First Nations; in addition, there were no pre-
existing land rights. TransCanada has held an existing
easement for 25 years for the entire length of the Yukon,
recognized in all the settled land claims. Finally,
Mackenzie has no underlying legislative authority for
coordinated decision making. TransCanada has specific
legislation, the NPA that is available only to TransCanada.
1:38:30 PM
SENATOR WIELECHOWSKI stated concerns about issues on the
Canadian side that Alaska cannot control. He asked
TransCanada's position on those concerns. He asked if
Canada would force unreasonable terms.
1:39:25 PM
MR. BERGNER said he had addressed First Nations challenges.
He did not think those issues would stop the project, in
spite of the fact that other projects using long stretches
of Crown land have experienced added costs and delays.
1:40:43 PM
MR. KEOUGH added that the Canadian government committed to
the Alaskan pipeline project thirty years ago. The Canadian
government passed the NPA to address the project. It is an
unusual situation, indicating that Canada is earnest and
commitments have been and continue to be honored. It is not
a new challenge for Canada to build this pipeline.
1:43:12 PM
SENATOR WIELECHOWSKI pointed out that both U.S.
presidential candidates have voiced concerns with oil or
tar sands emissions. He referred to concerns that Canadian
political leaders could hold the Alaska gasline hostage to
extract concessions from the U.S. in order to allow
continued export. He inquired if there were political
considerations that could stop the project.
MR. KEOUGH stated that they have not provided a detailed
evaluation of the political situation. They are aware of
the concerns of the U.S. candidates regarding the oil
sands. He did not see the advantage to Canada of blocking
the project. Alberta wants a good relationship with the
U.S. He described legislation called the Transit Pipeline
Treaty, which would apply to any pipeline coming from
Alaska. It attempts to ensure that a party from another
country is not discriminated against. The treaty has been
used for decades.
1:47:29 PM
CHAIR SENATOR HUGGINS asked the ramifications of the phrase
"Mackenzie First.
MR. KEOUGH stated that he was not aware of any formal
position or policy that would suggest that the Canadian
government would want the Mackenzie Valley project to
proceed before an Alaskan project. He noticed a decline in
the reserves and infrastructure in Alberta; they are
looking for a new source of supply. To some degree,
decisions will be made on a business basis. Carbon step up
will be needed for either project.
MR. BERGNER added that there will be challenges with both
projects going at the same time in terms of labor and
availability of materials, for example. He was not aware of
any formal policy mandating either project first. It did
appear for a while that the Mackenzie was making progress
through the process, but he thought the drivers were
business rather than political.
CHAIR SENATOR HUGGINS asked TransCanada's position on and
relationship to the Mackenzie project.
MR. PALMER stated that TransCanada is a 3 to 5 percent
participant in the Mackenzie project and funding about one
third of the Aboriginal Pipeline Group development costs.
Imperial Oil, an Exxon subsidiary in Canada, would be the
lead on the project, along with ConocoPhillips and Shell.
He agreed with statements voiced by Mr. Bergner and Mr.
Keogh.
MR. PALMER pointed out specific provisions of the treaty on
the project that he thought should give comfort. He read
the agreement principles applicable to a northern natural
gas pipeline, Clause 2, having to do with expeditious
construction timeline:
Both governments [Canada and the U.S.] will take
measures to ensure the prompt issuance of all
necessary permits, licenses, certificates,
rights-of-way, leases, and other authorizations
required for the expeditious construction and
commencement of operation of the pipelinAll
charges for such permits, licenses, certificates,
rights-of-way, leases, and other authorizations
will be just and reasonable and applied to the
pipeline in the same non-discriminatory manner as
to any other similar pipeline. Both governments
will take measures necessary to facilitate the
expeditious and efficient construction of the
pipeline consistent with the respective
regulatory requirements of each country.
MR. PALMER summarized that the U.S. has the commitment of
the government of Canada to prosecute the project
expeditiously.
RECESSED: 1:53:30 PM
RECONVENED: 1:54:58 PM
REPRESENTATIVE KELLY described construction experiences and
asked if time could be cut.
MR. KEOUGH stated that every delay would become a material
cost factor. They did not look at the construction phase of
the project. He acknowledged there would be challenges
regarding the construction aspects. He said that
TransCanada should have the advantage because of the right-
of-way through the Yukon and because of existing
infrastructure in Alberta. British Columbia also has
advantages that could save time.
REPRESENTATIVE KELLY asked if there were advantages to the
Denali project.
MR. KEOUGH said a third party proponent might have an
advantage because of issues TransCanada could encounter.
For example, regarding the process, TransCanada has the NPA
and the Northern Pipeline Agency created under that
legislation. That inherently should be an advantage;
however, a number of parties have questioned whether the
current proposal fits the framework of the NPA. The
continued applicability of the NPA could be challenged
regarding the duty to consult, the Yukon Board, and other
things that are outside the scope of the NPA. The debate
itself can cause delay. A new project proponent would not
be exposed to that type of concern. They would have to go
through a process from the beginning, but that might lend
clarity. On the other hand, it could take time to draw the
bodies together to establish a process.
2:04:28 PM
CHAIR SENATOR HUGGINS asked to be refreshed on challenges
related to Enbridge, Inc.
MR. PALMER responded that he had experience with Enbridge.
He had heard allegations that TransCanada's route is
different, but it is not. He refuted charges that the
volumes, size of the pipe, design, or capacity is different
and that these differences have changed the fundamental
terms of the agreement. He asserted that the language in
the NPA is permissive regarding those items.
2:06:39 PM
SENATOR WAGONER referred to Slides 23-24 [Yukon Land
Status] and asked how the orange areas related to the White
River and Kaska First Nations areas.
MR. BERGNER responded that the orange areas correspond with
two areas where there have not been modern land claims
agreements. The one on the west side corresponds with White
River, and the one on the east side corresponds with Kaska.
The orange areas are not a transfer of ownership, but an
interim land withdrawal that the government has made in
anticipation of a settlement. There are currently no
negotiations between the federal territorial government and
the White River and Kaska areas.
SENATOR WAGONER asked if the lands could become owned by
the First Nations at the conclusion of the claim.
MR. BERGNER said that was a fair characterization.
SENATOR WAGONER observed that the pipeline goes through the
two areas but does not bisect areas where ownership could
be transferred to the First Nations.
MR. BERGNER concurred; however, he pointed out that there
are a number of areas where the pipeline runs adjacent to
an area that has been withdrawn on an interim basis. The
policy of the government in settling has been to exclude
existing rights, including an existing right-of-way, from
any land transfers. He added that the orange patches are
drawn on the map by the government and not the First
Nations, who have not agreed to the government's position.
SENATOR WAGONER referred to the center of Yukon on the map
and the darker areas indicating land that has been settled.
He described multiple layers of First Nation claims on the
map and asked how that worked.
MR. BERGNER responded that dark gray areas are Category A
lands, indicating simple ownership, with surface and
subsurface rights. The lighter gray areas, which are more
numerous, are Category B lands, where there are surface
rights only. The area in the middle of the map does not
distinguish which First Nation owns the land.
2:12:40 PM
CHAIR SENATOR HUGGINS voiced his concerns regarding the
statement "the government's position." He asked if First
Nations could expand the size of the areas.
MR. BERGNER responded that the White River and Kaska areas
are currently in unsettled claims areas. There are two ways
for a First Nation to establish its claim. One is through
negotiations. The second is through litigation with the
government, claiming aboriginal title to a broader area. A
few bands in British Columbia have pursued that, but the
process takes many years with numerous challenges. No one
has succeeded in proving aboriginal title conclusively.
MR. KEOUGH interjected that land claims settlements have
respected pre-existing rights.
CHAIR SENATOR HUGGINS expressed concerns about changing
forms of agreements.
2:15:52 PM
MR. BERGNER pointed out that in the Yukon there is an
umbrella final agreement. It sets out standard terms for a
treaty. All of the treaties that have been reached in the
Yukon have followed that model. There has been no
indication that the model will be changed.
CHAIR SENATOR HUGGINS asked if there were points on the
route that TransCanada thought Alaska should pay attention
to.
MR. PALMER responded no. The umbrella final agreement was
established in 1993 and sets out the framework for all
final land claims. TransCanada's right-of-way through the
Yukon is recognized in that umbrella final agreement and
has been recognized by six of the eight First Nations that
have final land claims settlements along the right-of-way.
There are two remaining. The Kaska have not completed
negotiations with the government of Canada. White River
completed negotiations but have not held a ratification
vote.
2:18:35 PM
SENATOR FRENCH referenced the issues of former liability
with former partners. He asked if the right-of-way and
certificate ever belonged to the ANNGTC.
MR. PALMER responded that a separate commercial entity,
Foothills Pipeline Ltd., owns the Canadian assets.
Foothills is a 100 percent subsidiary of TransCanada. It
holds the right-of-way in Canada and holds the certificate
of public convenience and necessity. It has all the
engineering information that would be used for the project.
Foothills has nothing to do with the previous entity,
ANNGTC, that was structured on the Alaskan side. If the
license is granted, TransCanada will construct the Alaskan
section of the project, and Foothills will construct the
Canadian section. They will interconnect at the border.
2:20:51 PM
SENATOR FRENCH queried regarding the reasons the NPA may
not provide TransCanada with the single window regulatory
process and alternatives that could be used.
MR. KEOUGH focused on whether the debate that could occur
would delay the project, regardless of the outcome. Bennett
Jones looked at a number of the concerns and concluded
there could be some delay on the project. He thought that
TransCanada's application acknowledges that they will try
to meet the new legislative requirements and standards. If
they take a proactive approach of trying to ensure that
they meet those requirements, even if they are doing it
under the umbrella of the NPA, the concerns will be
addressed.
2:25:28 PM
MR. PALMER added specifics from the Pipeline Treaty, Clause
3, regarding the pipeline design:
The initial capacity of the pipeline will be
sufficient to meet, when required, the
contractual requirements of U.S. shippers and of
Canadian shippers. It is contemplated that this
capacity will be 2.4 bcf/d of Alaskan gas and 1.2
bcf/d of northern Canadian gas.
MR. PALMER pointed out that the language is permissive, not
restrictive. He did not argue with previous remarks that
parties may wish to challenge. In regard to environmental
issues, he referred to a new piece of legislation, the
Canadian Environmental Assessment Act. However, the NEB Act
was passed in 1959, twenty years before the NPA. He stated
that they have used the NPA in meeting environmental
conditions and will continue to do so.
2:28:36 PM
SENATOR ELTON referenced different kinds of negotiations
project sponsors have used with First Nations, such as the
soccer field. He assumed that the costs of infrastructure
development would be included in a tariff. He asked if
there was a standard that would be applied to limit costs.
MR. BERGNER responded that the agreements negotiated
between project proponents and First Nations have been part
of the cost of construction, part of the rate base for the
project, recoverable through tolls. The regulator is the
ultimate arbiter. The test of "reasonableness" has to be
met. However, this is recent practice. The regulators don't
have long experience with evaluating the reasonableness of
agreements. They are well aware of the risk.
MR. KEOUGH added that the rate payer plays a role in
determining reasonableness of costs.
2:33:25 PM
SENATOR ELTON acknowledged the complexity of the issue. He
thought more inducement would lead to faster construction.
MR. KEOUGH agreed and added that trying to expedite by
paying excessive amounts would be taking a risk that
shareholders would not like. He did not think regulators
would be sympathetic if they thought that proponents were
"buying their way out" of properly addressing an issue.
2:34:45 PM
REPRESENTATIVE HAWKER addressed the Certificate of Public
Convenience and Necessity held by Foothills. His
understanding was that, like FERC, the NEB could impose
conditions on the certificate.
MR. KEOUGH agreed.
REPRESENTATIVE HAWKER thought the certificate issued had
conditions attached, including a requirement that the user
deviate from the original pipeline design plan closer to
Dawson to accommodate the Dempster Lateral.
2:36:45 PM
MR. KEOUGH explained that the route that was approved was
different than the route included in the original
application. The change was put in to accommodate a
Dempster Lateral, two-form part of the project. One of the
scenarios that could have evolved at the time this was
being examined thirty years ago was that Mackenzie Valley
gas would not take its own pipeline south to mainland
Canada but would join into the Alaska pipeline project
around Whitehorse. The name of that pipeline was the
Dempster Lateral.
2:38:08 PM
MR. PALMER clarified that the original route of the project
from Alaska continuing through Yukon was to go through
Dawson City. The Dempster Lateral would have come down the
Dempster Highway from the Northwest Territories to Dawson,
a shorter route than the route Alaska wanted through
Whitehorse. Mackenzie Valley gas is currently pursuing
another route.
REPRESENTATIVE HAWKER understood that the certificate would
have required Alaska gas to bear two-thirds of the cost of
the construction of the Dempster Lateral.
MR. PALMER stated that Alaska was required to bear the cost
of the extra length required to re-route the project.
REPRESENTATIVE HAWKER asked if certificate were still valid
if the project were to re-emerge.
MR. PALMER answered that Foothills had an obligation to
prepare an application for the Dempster Lateral, which it
met. There was no obligation to construct the pipeline.
Over the last decade, the Mackenzie project has been
pursued directly down the valley. There has been no active
work on the Dempster Lateral for decades.
2:41:46 PM
REPRESENTATIVE HAWKER reiterated his question.
MR. PALMER stated that Foothills has no obligation to
construct the Dempster Lateral.
REPRESENTATIVE HAWKER asked if the condition in the NEB
certificate would still be a condition on this project if
it were to come up again.
MR. PALMER said that in the unlikely event that Foothills
would construct the Dempster Lateral, the provision is
still there.
REPRESENTATIVE HAWKER restated that it is still a condition
on the certificate. He stressed the potential risk.
2:43:46 PM
MR. PALMER agreed that structures often change over time in
terms of how commercial deals are put together, but stated
he had seen no change in the intentions of the Mackenzie
project over the past ten years. They had not approached
TransCanada to construct the Dempster Lateral.
2:44:38 PM
REPRESENTATIVE GATTO wanted to address the likelihood of
success. The Mackenzie project is having trouble. The
project lead is Imperial Oil.
MR. PALMER agreed that the lead is Imperial Oil, which
Exxon owns 70 percent of. The other principle players in
the project are ConocoPhillips and Shell. The Aboriginal
Pipeline Group has a small interest with potential to take
a one-third interest, and TransCanada has a tiny interest.
REPRESENTATIVE GATTO stated his interest in TransCanada
experiences with permitting in Canada. He understood
TransCanada was active in the Keystone project. He asked
for a description of TransCanada's experience with
difficulties in permitting.
MR. PALMER responded that he had not worked specifically on
the Keystone project or other TransCanada projects as he
has been focused on the Alaska project for several years.
Keystone is moving forward with construction in spite of
challenges on state and federal levels in both Canada and
the U.S.
2:47:14 PM
REPRESENTATIVE FAIRCLOUGH asked if Alaska North Slope gas
traveling down the Alaska portion of the pipeline is owned
by Alaska.
COMMISSIONER GALVIN answered that the gas is owned by the
producers once it is in the pipeline.
REPRESENTATIVE FAIRCLOUGH asked who owned the gas when it
crosses the Canadian border. She wanted to know where
ownership changes hands.
COMMISSIONER GALVIN explained that the gas molecules are
owned by the producers, put into a pipeline owned by an
entity that is regulated by FERC on the Alaskan side. On
the Canadian side the molecules are still owned by the same
producers, in a pipeline owned by a separate but affiliated
company regulated by the Canadian regulatory bodies.
REPRESENTATIVE FAIRCLOUGH asked if Canada was off-taking
some gas into the Yukon and wondered how the value of the
off-take is calculated.
2:49:36 PM
COMMISSIONER GALVIN said there were designated off-take
points required under Canadian law. He thought the question
was regarding the obligation to sell gas at those off-take
points and what the implications are for Alaska tax and
royalty provisions.
REPRESENTATIVE FAIRCLOUGH asked if Commissioner Galvin was
aware of off-take points in the Yukon.
COMMISSIONER GALVIN responded that he was aware.
REPRESENTATIVE FAIRCLOUGH stated that she had not gotten
that information. She pointed out that TransCanada spoke
about import and export law. Alaska has been talking about
how to get Alaska gas to market. She understood that there
would be off-take into Canada at the Alberta Hub. She
discussed some of the volumes and wondered if the gas that
went to the Yukon went first to the Hub.
2:52:46 PM
COMMISSIONER GALVIN explained that when the gas comes off
the North Slope, it is owned by producer. The state could
choose to take possession of their share, but for the
discussion he would assume the state allowed the producer
to own the gas and sell it for the state. The producer then
owns the gas as it enters the pipeline. The gas goes down
the pipeline. There would most likely be Alaskan off-take
points, but off-take is not required. The producer has to
sell the gas to someone who wants to buy it at an off-take
point. A local utility might buy the gas, for example.
COMMISSIONER GALVIN continued to explain that the same
thing happens when the gas enters Canada. There is an
additional point where the producer will contract to sell
gas, but that is expected to be a small amount. Those sales
contracts are not a significant portion of the economics of
the project. There would also be minimal sales at the
Alberta Hub. The ultimate consumers may be in Canada or in
the U.S.
COMMISSIONER GALVIN pointed out that import/export balances
are considered from a very macro level. Most of the gas
going from the North Slope to the Alberta system is
expected to end up back in the U.S.; the quantity exported
at the Alaska border is likely to be imported somewhere
along the Canadian/U.S. border. He emphasized that the
molecules exported may not be the same molecules imported.
2:56:12 PM
COMMISSIONER GALVIN continued that the amount of gas sold
in Canada at various junctures would be the result of a
sale agreement between the producer and a buyer within the
location, not determined by Alaska or the Canadian
government.
MR. PALMER cited Clause 3b of the Treaty:
The shippers on the pipeline [through the Yukon]
will upon demonstration that an amount of
Canadian gas equal to the btu replacement value
basis will be made available for contemporaneous
export to the U.S., make available from Alaskan
gas transmitted through the pipeline gas to meet
the needs of remote users in the Yukon and in
provinces through which the pipeline passes.
MR. PALMER emphasized that the volume taken off would be
very small and must be replaced with Canadian gas. He
listed the towns contemplated in the Yukon: Beaver Creek,
Burwash Landing, Destruction Bay, Haines Junction,
Whitehorse, Teslin, Upper Liard, and Watson Lake. The
population of Yukon is 33,000 people, so expected volume at
those locations is tiny. The volumes are only required if
there is replacement Canadian gas for export to the U.S.
MR. PALMER clarified his response to REPRESENTATIVE HAWKER.
Both zones 10 and 11, the Dempster Lateral, were never
certificated by NEB. Zones one through nine, everything but
the Dempster Lateral, have been certificated.
3:00:04 PM
REPRESENTATIVE FAIRCLOUGH asked a question regarding off-
takes before the Alberta Hub.
CHAIR SENATOR HUGGINS said that he had heard about those
off-takes previously.
REPRESENTATIVE FAIRCLOUGH stated concerns that Alaska use
of the gas was restricted. She asked if there were similar
provisions in Alaska. She wondered if there was a reason
the off-takes have not been highlighted.
COMMISSIONER GALVIN thought there was a misunderstanding
because of unrelated issues colliding. He stated that there
is no restriction whatsoever on Alaskan off-take once the
pipeline is built. Comparing question of off-takes on the
Canadian side does not relate to the issue of the 500
Mmcf/d for other projects. That restriction relates to when
the project moves towards commencement. Alaska has made a
commitment to our licensee but wants also to protect in-
state needs through an alternate pipeline. When the
pipeline is actually in place serving Canadian locales
upstream of Alberta, Alaska will have full ability to take
gas as needed at the going rate.
REPRESENTATIVE FAIRCLOUGH thought the gas belongs to Alaska
until it crosses the border. She wanted clarification
regarding trade imbalance and deficit, and where the
shippers would sell gas. She asked how the gas is accounted
for at the off-take points.
3:03:54 PM
MR. PALMER explained that once the gas enters the pipe, the
shippers own it, not the pipeline company or the state,
unless royalties have been taken in-kind. The shippers have
possession of the gas until they make a sale. They can sell
it either because they want to or because they are required
to by the treaty. If they make a sale at Whitehorse, the
volume would be small, perhaps 10 to 20 Mmcf/d. In the
event there is no replacement of that volume, then the
shipper will have made a sale, or exported their gas from
the U.S. into Canada. In the event that the volume is
replaced with Canadian gas further downstream, the net
effect would be zero. In the event they sell the gas in
Alberta, the effective location for the incremental volumes
will ultimately be the U.S. This is common. Most of the gas
in the Alberta Hub is traded four or five times each day.
The ultimate ownership of the gas might be different
leaving the hub than entering it. Ultimately, however, it
will re-enter the U.S. and the value will not shift. Where
it will be consumed cannot yet be specifically identified.
REPRESENTATIVE FAIRCLOUGH asked for assurance that the cost
of the take-offs would not be borne by the pipeline.
MR. PALMER answered that the costs of the off-takes are
limited at a total of $5 million, as laid out in the
treaty. This was a benefit Canada received in the
negotiations.
CHAIR SENATOR HUGGINS explained that the panel would
broaden after the break.
3:08:32 PM
COMMISSIONER GALVIN described the mechanics of off-take
points at Whitehorse and other places. There will be meters
with an accounting mechanism for ownership. Once the gas
goes into the line, the molecules are mixed. An entity owns
a volume of the total gas in the pipe. He stated that
Alaska would bear the cost of the off-takes to some extent
but the price that would be paid in Whitehorse would bear
part of the cost. One of the things that will be
established in AGIA is a methodology for computing price.
COMMISSIONER GALVIN addressed the issue raised by
REPRESENTATIVE FAIRCLOUGH about not receiving information.
He said the analysis is made up of a tremendous amount of
information. The presentations try to present the most
important and relevant for legislative consideration. He
acknowledged that every issue is not covered.
RECESSED: 3:11:59 PM
RECONVENED: 3:12:15 PM
CHAIR SENATOR HUGGINS acknowledged the new members of the
panel, including Donald Bullock, Steve Porter, Bonnie
Harris, Dan Dickinson, CPA, Legislative Budget and Audit
Committee and Tamara Cook, Director, Division of Legal and
Research Services, Legislative Affairs Agency were
available for questions but did not speak.
3:15:28 PM
REPRESENTATIVE GRUENBERG referred to a provision from the
act to establish the Northern Pipeline Agency, Section 3b.
He read the "transit agreement":
Such replacement gas will be treated as
hydrocarbons in transit for purposes of the
agreement between the government of Canada and
the government of the United States of America
concerning transit pipelines.
REPRESENTATIVE GRUENBERG continued with Article 2.1:
No public authority in the territory of either
party [Canada and the United States] shall
institute any measures other than those provided
for in Article V. which are intended to or which
would have the effect of impeding, diverting,
redirecting, or interfering with in any way the
transmission of hydrocarbons in transit.
REPRESENTATIVE GRUENBERG asked if the language in Article
2.1 referred to the language in the previous paragraph.
MR. PALMER thought it did, in his opinion.
REPRESENTATIVE GRUENBERG continued that the intent of this
is minus any of the small amounts going to small towns,
along with some loss. He wondered if the intent of the two
documents was that basically the hydrocarbons, not molecule
by molecule but by quantity, are going from the U.S. to the
U.S. through Canada.
MR. PALMER answered yes.
REPRESENTATIVE GRUENBERG asked if dealings with First
Nations are governed by Canadian federal law, or if the
courts and legislative assembly of the Yukon Territory, for
example, have a role. He pointed out that in Alaska there
have been legislative exchanges with the members of the
Yukon legislative assembly. He wondered if the two bodies
could deal with First Nations issues together.
MR. BERGNER answered that dealings with First Nations apply
to all levels of Canadian government: federal, provincial,
and territorial. The legal duty is enforceable through the
courts on all three levels. In terms of the government's
role, there are a number of Canadian jurisdictions, mostly
provincial, that have implemented consultation policies or
guidelines. This is an attempt by provincial governments
(Alberta and British Columbia are examples) to put a policy
framework to government decision making, to identify how
consultation will take place, and how this legal duty of
the government will be discharged. The government of the
Yukon does not have such a policy. Yukon's government is in
a different position, given the large number of settled
claims in the territory. There is on-going litigation in
those courts regarding the extent of the application of the
duty to consent. He suspected the unresolved nature of that
question has probably restrained Yukon's enthusiasm for
creating a consultation policy akin to Alberta and British
Columbia.
3:20:51 PM
REPRESENTATIVE GRUENBERG asked if the government of Alaska,
particularly the legislature, should take any role in the
matter in relation to the Yukon government.
MR. BERGNER hesitated at the words take a role. No legal
duty applies or binds the Alaska government or the federal
government. He described his role as being aware of the
issue and said that any project that proposes to use land
in Canada will face this risk. Like many other risks beyond
the jurisdiction of the state of Alaska, it's one to
monitor, but he did not see an active role the state could
take.
3:22:44 PM
REPRESENTATIVE ROSES referred a statement regarding the
advantage of having the Northern Pipeline Agency,
established by the Northern Pipeline Act, instead of three
different entities trying to set regulation. He asked if
that would apply to any pipeline that would go through
Canada from Alaska.
3:23:32 PM
MR. KEOUGH responded that the Northern Pipeline Agency was
created under the Northern Pipeline Act, which applies only
to the specific project that was contemplated at the time
it was passed. Any new third party proponent would have to
start afresh with a process before the NEB, the Canadian
Environmental Assessment Agency, and probably the Yukon
Environmental and Socio-economic Assessment Board. They
would not have the benefit of either the Northern Pipeline
Act or the Northern Pipeline Agency.
REPRESENTATIVE ROSES asked if a proponent could attempt to
establish a similar single, coordinated process. He
wondered if that was why there are two companies,
TransCanada and Foothills.
3:24:52 PM
MR. PALMER stated that there has always been a separation
in ownership in the entities that would develop the Alaskan
section and the Canadian section. Foothills has access to
the Northern Pipeline Act and is the main party in the Act
and in the treaty. It is the sole entity that has access to
a single window regulatory agency for the project.
REPRESENTATIVE ROSES wanted to know if that would apply to
partners that could join with Foothills.
MR. PALMER replied that any party that is an owner in
Foothills would have access to it.
REPRESENTATIVE ROSES asked if the Certificate of Public
Convenience and Necessity was a conditional or
unconditional certificate in Canada.
3:26:26 PM
MR. PALMER replied that the certificate is approved and has
terms and conditions that will have to be met by
TransCanada and Foothills. In each of the locations the
project goes through there are specific terms and
conditions it must meet. There will have to be approval for
the final design of the project from the designated
officer, which is a generally an NEB member appointed under
the Northern Pipeline Act. All of that has been
contemplated for thirty years with five expansions through
1998.
REPRESENTATIVE ROSES wanted clarification about the five
off-take points in Canada, and about tariffs. The off-take
points are part of the application. He understood that as
long as the off-take volume was replaced, it was not an
import/export issue. The tariffs would be calculated at
each of the off-take points. He asked if there are still
transportation costs if .2 Bcf/d were taken off before it
got to Alberta, and then .2 Bcf/d put back somewhere else.
3:28:40 PM
MR. PALMER explained that customers only pay for the zone
through which their gas is transported. He said the more
appropriate number is .02 Bcf/d, but if that number is
used, the Canadian section of the project will have zonal
rates specifically set out in the Act. There are two zones
within the Yukon, for example, and so on down the project.
Therefore, if .02 Bcf/d were delivered upstream of
Whitehorse, there would be .02 Bcf/d left downstream of
Whitehorse.
REPRESENTATIVE ROSES asked if there is a clause in the
pipeline act that requires partnering with any line that
comes across the border at that point.
MR. PALMER replied that there is not a requirement in the
act. The NEB has the power under Section 71.3 to require
Foothills or any other Canadian pipeline to interconnect
with another party under certain circumstances.
REPRESENTATIVE ROSES asked if another U.S. company could
then apply through NEB and the Canadian company would have
to cooperate with them.
MR. PALMER replied that Canada, through the NEB, has the
right to require Foothills to interconnect at the border.
He noted that he spoke as a businessman and not a legal
person.
3:31:39 PM
MR. KEOUGH reported that Mr. Palmer had captured the
essence of the operation of the National Energy Board Act.
REPRESENTATIVE ROSES restated his question at the request
of the chair.
3:33:16 PM
COMMISSIONER GALVIN responded that one question is: if
Foothills builds a pipeline to the border on the Canadian
side and Denali builds a pipeline to the border on the
Alaskan side, would Foothills be required to hook into it.
The question of whether NEB would require Foothills to
build a pipeline under the NPA if Denali came to the border
was a very different question. Foothills has no obligation
if Denali builds a pipe to the border and wants to be
hooked up to the Alberta system. If Foothills builds the
pipe to the border, and Denali builds one from the other
side to the same point, his understanding of Mr. Palmer's
statement is that NEB would not require Denali to build a
separate line around the Foothills project in order to get
to Alberta; they would probably require Foothills to hook
in at that point. He did not think that scenario would play
out.
REPRESENTATIVE ROSES pointed out that the discussion
highlighted the fact that at some point there would be a
partnership. The issue is who gets to the partnership the
fastest.
CHAIR SENATOR HUGGINS thought the question deserved an
answer.
COMMISSIONER GALVIN replied that Foothills will only build
from the Canadian border to the Alberta Hub if there is an
agreement to ship gas along the pipeline.
MR. PALMER agreed with Commissioner Galvin and added that
Foothills would seek customers and would not construct the
pipeline without customers in hand.
3:36:23 PM
CHAIR SENATOR HUGGINS addressed a previous question related
to routing. He read from the report: "There will be an
onerous process potentially leading materially to the time
needed to secure all appropriate?into British Columbia." He
asked for comment.
MR. KEOUGH responded that Foothills has a right-of-way
through the Yukon but not through British Columbia. That
type of process can take a material amount of time to
complete. He emphasized a significant distinction between
the Yukon and British Columbia. They did not want people to
misunderstand the difference between the two jurisdictions.
MR. PALMER agreed and elaborated that circumstances are
different in Yukon because there is very little pipeline
there, unlike British Columbia and Alberta. There are few
private land interests in Yukon Territory. It is largely
provincial Crown land and the pipeline does not cross First
Nations reserves. TransCanada is confident about attaining
rights-of-way and access for facilities through Alberta.
3:39:09 PM
CHAIR SENATOR HUGGINS wanted clarification about the term
onerous
MR. KEOUGH replied that that the word was used to ensure
clarity regarding the distinction between Yukon, where
there is a current right-of-way, and British Columbia,
where the process will be onerous in comparison. He pointed
out that any party would face that difficulty.
MR. PALMER added that a memorandum of agreement was signed
between the Northern Pipeline Agency, the government of
British Columbia, and the government of Alberta separately
to provide Crown land to Foothills for use by way of
easement grant lease or other authorizations on terms
consistent with its general practice for use for a project.
This highlights the fact that the governments of Canada and
of the provinces of British Columbia, Alberta, and
Saskatchewan have already contemplated this. Those
processes were used in those provinces for the construction
of the pre-build.
3:41:17 PM
SENATOR FRENCH wanted to address Alaskan fears about
authorizing a foreign company to take gas through a foreign
country. He asked about the history of relationships
between the two countries and why Alaskans shouldn't fear a
thirty year process.
3:42:50 PM
MR. PALMER responded that the natural gas and oil
businesses in North America are completely integrated,
whether they are integrated in Canada or the United States.
TransCanada has been transporting Canadian gas into the
U.S. for more than forty years. There have been export and
import permits and successful certification on both sides.
This has been true not just for TransCanada but for all the
oil and gas businesses. This has worked well for both sides
as the U.S. has a market that is larger than their supply,
and Canada has a supply larger than their market. We share
the largest and longest undefended border between two
nations in the world. Canada is the U.S.'s largest trading
partner. Regarding the Alaska pipeline project, there is a
unique and specific treaty and piece of legislation in
place in Canada to expedite the transport of Alaskan gas
across Canada and back into the U.S.
3:46:46 PM
MR. KEOUGH added that history demonstrates the stability
and reliability of the relationship between the two
countries, especially as it relates to energy commodities.
He observed that the pipelines supplying those commodities
have been in operation for an extended period of time and
have worked because of free market forces. The track record
demonstrates the stability.
3:48:54 PM
MR. BERGNER agreed and emphasized the good relationship
along the long border. He said the vast majority of
Canadians live within 100 kilometers of the border, which
translates to Canadians thinking about the relationship.
Business relationships across the border are increasing. He
referred to the North American Free Trade Agreement (NAFTA)
and the free trade agreement before NAFTA, which have
prompted many industries to look beyond the border and to
operate simultaneously on both sides, particularly related
to oil and gas.
COMMISSIONER GALVIN observed that Alaska has tremendous
supplies of natural gas and a limited market and so must
seek other markets. Because of geography, that gas must
either leave Alaska to be consumed in a foreign country or
transport through Canada to the continental U.S.
3:51:48 PM
CHAIR SENATOR HUGGINS added that the most integrated
military operation capability in North America is the North
American Air Defense Command. He related a personal story
about a relationship with a Canadian in the military.
SENATOR FRENCH emphasized that tens of thousands of jobs
will be created, including white and blue collar jobs. The
treaty addresses the free flow of resources between the
countries. He asked about laws that allow Alaskan engineers
to work in Canada through reciprocity agreements.
3:53:19 PM
MR. PALMER spoke to his understanding of the requirements
regarding engineers. Only an ethics exam is required for a
qualified U.S. engineer to work in Alberta; it is common
for U.S. citizens to work there. The Association of
Professional Engineers, Geologists and Geophysicists of
Alberta (APEGGA) adjudicates who is qualified to work in
Alberta. He said APEGGA would file a letter on the subject.
British Columbia has similar rules.
3:54:48 PM
MR. KEOUGH added that one of the greatest challenges facing
the construction of new infrastructure in Western Canada
currently is the shortage of resources. It is necessary to
bring in skilled workers to assist in the completion of
projects. There would be too much demand and too little
supply for all resources.
3:56:41 PM
CHAIR SENATOR HUGGINS referred to an unanswered question
regarding reciprocity between Canada and some of the
provinces when it comes to qualifications of engineers.
3:57:18 PM
SENATOR WIELECHOWSKI wanted clarity regarding legal issues.
He asked what happens if the legislature amends AGIA.
DONALD BULLOCK, ATTORNEY, LEGISLATIVE LEGAL SERVICES,
observed that one of the steps consisted of certification
by the commissioners that the application was complete. If
requirements are changed, then the application would not be
complete, and the process would have to start over. This is
even before the due process issues are addressed. He
pointed out that not only TransCanada would be affected by
a decision to change the application. Other companies
decided to apply or not based on certain requirements, and
changed circumstances might have affected those decisions.
Amending AGIA could effectively void an application.
STEVE PORTER, LEGISLATIVE CONSULTANT, LEGISLATIVE BUDGET
AND AUDIT COMMITTEE, LEGISLATIVE AFFAIRS AGENCY, asked if
the question related to the effective date clause.
SENATOR WIELECHOWSKI said his follow-up question was what
would happen if that date were changed.
MR. BULLOCK replied that it does affect some practical
things with TransCanada.
SENATOR WIELECHOWSKI asked what would happen if TransCanada
were approved but the license was not effective until
January 1.
MR. BULLOCK stressed that under the existing legislation,
there is an expectation by those that applied under the law
that they would know whether or not they were going to go
forward within a certain period of time [sixty day
requirement, AS 43.90.190]. It could significantly change
the benefits to their agreement or their anticipation of
what they were going to do, to the extent that requirements
or resources have been tied up during that extended period.
He reiterated that [a change to the application] could
raise due process and statutory issues regarding when the
legislature must approve what the commissioners have
offered.
4:00:48 PM
BONNIE HARRIS, SENIOR ASSISTANT ATTORNEY GENERAL,
DEPARTMENT OF LAW, OIL, GAS AND MINING SECTION, replied
that the Act contemplated that the decision would be made
within sixty days, so the applicants would know within that
time.
CHAIR SENATOR HUGGINS thought that appeared to contradict
previous testimony that it would be the effective date put
on passage of the bill.
MS. HARRIS replied that the legislation would be effective
immediately. If it were passed within the sixty days, then
it would be consistent with the view of the legislation. If
the effective date of the bill were later, it raises the
concerns that Mr. Bullock alluded to. Also, under the
application that TransCanada has committed to, the
application would remain valid for nine months from the
date the application was due, which was November 30. Also
built in is a time at which the decision would shift to
TransCanada whether they would want to go on with this if
the authorization to issue a license were delayed beyond
that date.
4:02:55 PM
MR. BULLOCK responded that section AS 43.90.190
contemplates and anticipates when the bill would take
effect. The statute does not require and reference the
effective date of the legislation. The intent was to avoid
the issue of an insufficient vote to make the bill
effective immediately, so the requirements in 43.90.190b
are if a bill approving the issuance of the license passes
the legislature within sixty days after the legislature
receives it. It doesn't say if an act takes effect within
sixty days after. So it is the legislative action of
passing the bill through both houses that satisfies the
sixty day requirement. When it becomes law, then the
commissioners are authorized to issue the license and
proceed.
SENATOR WIELECHOWSKI asked about whether a letter of intent
could be added to AGIA or to the application and also if a
memorandum of understanding could be added to clear up the
ambiguities.
MR. BULLOCK responded that a letter of intent may help
interpret the law. It's an uncodified section directed at
the courts that states the legislative intent that the
courts give expedited consideration with anything related
to the project. It is not binding on the courts.
SENATOR WIELECHOWSKI asked about a memorandum of
understanding.
MR. BULLOCK thought that where there are ambiguities within
AGIA and the requirements put forth in the RFA, there is
room for TransCanada and the administration to clarify and
make agreements. It could not change the fundamental terms
in AGIA that were presented in the RFA and contained within
the act. They could not agree otherwise.
4:05:59 PM
SENATOR WIELECHOWSKI asked if the memorandum of
understanding could be between the legislature and
TransCanada.
MR. BULLOCK explained that the executive branch under the
separation of powers will issue the contract and continue
to negotiate the agreement.
SENATOR WIELECHOWSKI asked if the governor could award the
license to TransCanada if the legislature rejects them,
since there is a separation of powers.
MR. BULLOCK replied that there is that possibility.
Normally the executive branch is the one that signs
contracts that generally affect the state. The legislature
has contracts too, for office space for example. The
executive branch acts and carries out the policies that the
legislature has established by law. When the governor
presented AGIA, she said she would give the proposed
license to the legislature. The original bill was that the
legislature had red light power; they could stop it by
taking action. If they took no action, it would go forward.
As the legislation progressed, it was amended to include
approval within sixty days. There are different
interpretations of that power. One interpretation is that
the governor or executive does not have full power to sign
that contract until the legislature actually approves it.
Another interpretation is that the governor could possibly
issue the license if she finds that the application
satisfies all the things that the legislature anticipated
and hoped for when they passed AGIA, including the twenty
"must haves" in 43.91.30, as well as the authority for the
commissioners to add additional requirements in the
applications. He referred to a case in which the
legislature approved sub-cabinet officials. Historically,
the governors had put forth that list for legislative
approval. At some point, they stopped doing that. It was
litigated and the court strictly construed the legislative
approval requirements and said that, although the governor
could voluntarily do it, the governor did not have to and
the legislature did not have the authority or the power to
approve positions that were not authorized for approval
under the constitution.
4:09:13 PM
REPRESENTATIVE RAMRAS questioned if TransCanada personnel
will live in the U.S.
MR. PALMER responded that TransCanada will not make those
decisions until the license is granted.
4:10:24 PM
REPRESENTATIVE RAMRAS thought Alaska hire was a key
indicator.
MR. PALMER answered it would be if TransCanada is granted
the license.
REPRESENTATIVE RAMRAS asked if key TransCanada upper
management personnel would live in Alaska if the license
was granted.
MR. PALMER reiterated that those decisions have not been
made and that the company will make those decisions when
granted a license. He acknowledged a clear obligation
regarding Alaska hire.
REPRESENTATIVE RAMRAS asked about moving gas from the Cook
Inlet field north to Fairbanks. He referred to a letter he
had written to Kurt Gibson, who was the deputy director of
the oil and gas division, regarding a commercial gas sale
from the North Slope. He said Mr. Gibson told him that that
sale would disturb the state's litigation posture on
Spencer Hosie's "duty to produce" theory.
REPRESENTATIVE RAMRAS said he was in favor of an in-state
line. He queried building a 450 or 500 Mmcf/d line from the
North Slope. He also asked for clarification regarding the
"duty to produce."
4:12:32 PM
MR. PORTER responded that regarding Spencer Hosie's
proposal, there is duty to produce on behalf of the owners
of North Slope gas if it is economic to do so. The key
question one of the legislators asked in May was whether
the producers moving forward with the project satisfied the
duty to produce. Mr. Hosie answered that in the affirmative
in May. The same question was asked in Juneau later, and
once again Mr. Hosie said yes. During the road tour, in
Anchorage, the question was asked a third time; Mr. Hosie
was not there and Commissioner Galvin answered the question
by saying that as long as the producers are moving their
own project forward, they have met the duty to produce.
There is nothing the state can do to take that gas away
from them as long as they are being reasonably prudent. If
they stop that project, the question could be asked if a
reasonably prudent operator would have continued to move
the project forward.
4:15:37 PM
COMMISSIONER GALVIN listed three mischaracterizations in
the exchange. He said the exchange in the letter
mischaracterized Mr. Gibson's position on the relationship
between the sale of gas and the duty to develop. Secondly,
regarding Mr. Porter's comments regarding Mr. Hosie, he
said the issue was brought up when Mr. Hosie could not
defend himself. The question becomes one of credibility. He
said he favored Mr. Hosie on the issue. Lastly, he refuted
saying that the producers have met their duty by advancing
the project. He said the producers have met their
obligation if they moved their project ahead, produced the
gas, and delivered it to market. Simply moving the project
ahead did not meet the duty to develop.
COMMISSIONER GALVIN maintained that he had said throughout
that the purpose of the Denali project is not yet played
out. On the one hand, it could prove to be the vehicle by
which gas gets to market. There is nothing within AGIA and
within the state's leases that will preclude the producers
from advancing their own project to build a pipeline
bringing their gas to market. The question remains whether
that will be the ultimate outcome. He thought advancing the
TransCanada project will drive the producers to pursue the
Denali project. The state needs to keep its options open.
He asked that people be accurate about what has been said
on the record.
4:19:20 PM
REPRESENTATIVE RAMRAS apologized and clarified that he had
had a spontaneous meeting with Kurt Gibson on the second
floor inquiring why Mr. Gibson was not going to attend the
Senate resource hearing about in-state gas. He stood by his
characterization regarding the letter he wrote. He stated
his intention to talk about in-state gas and build an in-
state bullet line. He questioned why Alaska is not tapping
into the North Slope where there is an enormous amount of
natural gas; he wondered if part of the reason was related
to the duty to produce.
4:20:40 PM
MR. PORTER commented that he had mentioned only facts that
he can substantiate. He agreed with Commissioner Galvin
that if Denali was only moving forward with the pipeline,
they had not met their duty to produce. He said that the
present circumstance is different than that. Once Denali
started spending money toward moving a project forward,
they began moving towards that process and began to meet
the duty to produce. He stated that he had continually
asked for the opportunity to be on the stand with Spencer
Hosie to ask the question. He took issue with his
credibility being called into question.
CHAIR SENATOR HUGGINS called a break to clear up questions
of credibility.
RECESSED: 4:22:51 PM
RECONVENED: 4:23:50 PM
COMMISSIONER GALVIN offered a description of the perceived
conflict. He thought the point was important and addressed
a number of the issues in the relationship between the
TransCanada project and the Denali project. He described a
possible scenario in which the license is issued and
TransCanada moves forward to open season. The Denali
project also moves forward to their open season.
TransCanada's open season happens first. Producers don't
show up. What happens next is that TransCanada is required,
under the terms of AGIA, to move towards a FERC
certificate. The project remains viable and available for
gas to be committed to it. In the meantime, the producers
have advanced Denali. The nature of the question becomes
whether the investment of $40 million this summer is a
satisfaction of the duty to develop.
COMMISSIONER GALVIN stated that the question of duty to
develop also applies as we move towards Denali's open
season and the question of whether the producers are going
to be able to get gas commitments at that open season.
Having the TransCanada project continuing to move forward
keeps the duty to develop issue up front and protects
Alaska interests.
4:29:10 PM
MR. PORTER agreed and emphasized the importance of the
producers seriously moving their project forward. He said
nothing other than incentives for the TransCanada project
will force the producers to show up for the project.
4:30:05 PM
SENATOR THERRIAULT queried which panel members were
licensed to practice law either in Alaska or another
jurisdiction.
(COMMISSIONER GALVIN, MR. PORTER, MR. KEOUGH, and MR.
BERGNER raised their hands.)
4:31:27 PM
REPRESENTATIVE DAHLSTROM asked about homeland security
issues.
4:32:41 PM
MR. PALMER responded that he did not know the answer to
that.
COMMISSIONER GALVIN said that homeland security had not
been engaged within the state system. The federal
Department of Homeland Security (DHS) is coordinated with
the federal pipeline authority. They looked at AGIA but did
not raise issues with regard to homeland security related
to the TransCanada project. He stated his confidence in the
systems in place.
4:34:11 PM
SENATOR DYSON stated that Canadian and U.S. military
cooperation goes back a long time. Together the countries
have an organization called the North American Aerospace
Defense Command (NORAD). They have provided top cover for
North America since the early 1950s, and have expanded to
include the maritime and terrestrial environment.
Coordination is advanced and intricate, and working well.
The Royal Canadian Mounted Police is the equivalent of the
FBI and is well integrated.
4:35:48 PM
REPRESENTATIVE GARA queried for the record the evolution of
TransCanada's discussions with other parties regarding
building a pipeline to Valdez, and TransCanada's position
regarding that pipeline.
MR. PALMER said there had been no evolution. If TransCanada
holds the initial open season, and customers nominate
Valdez, and there is sufficient volume to make it economic,
TransCanada will construct the pipeline from Prudhoe Bay to
Valdez.
REPRESENTATIVE GARA listed possible scenarios regarding
volumes for the initial open season. He asked if
TransCanada would be willing to construct the pipeline to
Valdez if 2 Bcf/d were committed for that line, assuming
the gasline permitting process through Canada for a 4 Bcf/d
line goes more slowly than optimal.
4:38:30 PM
MR. PALMER stated that based on the evidence of the past
forty days, most parties do not believe there will be that
6 Bcf/d nominated in an initial opening season. If 2 Bcf/d
were nominated to Valdez and the Canadian project is not
ready to proceed for whatever reason, TransCanada has
indicated they are prepared to go forward based on customer
contracts in place at that time.
4:39:28 PM
MR. PORTER emphasized the significance of the open season.
TransCanada has committed to encourage either an LNG
project or to Canada. The open season will indicate where
people want to move the gas. As long as the open season is
available to them, they need only to find a customer
downstream willing to pay the producers. It is a commercial
deal. In the scenario REPRESENTATIVE GARA referred to, if 2
Bcf/d were committed and if the Canadian portion was not
moving forward, one of the other options is to hold another
open season. Those processes signal and help the pipeline
companies figure out what to do. If someone wants to move
gas through LNG, they need to find customers and encourage
them to get a contract with the producers.
CHAIR SENATOR HUGGINS stated his discomfort with the
contract consisting of three documents and asked for legal
clarification.
4:41:48 PM
MS. HARRIS replied that it is common in public contract law
for the government to request bids or applications, which
is considered the offer for the contract. In this case, the
state got five offers; one was forwarded one to the
legislature for review. Acceptance of the offer by the
state creates the contract. The documents that make up the
contract are AGIA, the RFA, which expands AGIA, and the
application itself. If the license is issued, those
documents will make up the contract. The implementation of
the contract will come through the project plan that is in
the application. For interpretation of what is required
under the contract, they will look at the application, the
RFA, and AGIA. If there were a question, AGIA would control
it. There are different levels of terms. As long as the
contract contains an offer, an acceptance, and discernable
terms, there is a contract that can be implemented and
enforced.
4:44:24 PM
MR. PORTER asked for clarification of the question.
CHAIR SENATOR HUGGINS explained that the license is a two-
page document. He thought the three elements constitute the
contract.
MS. HARRIS clarified that the two-page document certifies
that a license has been issued, but when the license is
issued, the contract is made of those [three] elements.
4:45:13 PM
MR. PORTER described a potential ambiguity in the document
presented to the legislature. The administration is
comfortable with it but willing to discuss the
clarification. It is not a change in intent, but cleans up
the language. He gave an example: if Party A is obligated
to obligation 1, and Party B is obligated to obligations 1,
2, and 3, but the language of the license says Parties A
and B are obligated to 1, 2, and 3, then it looks like
Party A is also obligated to 2 and 3. This is an ambiguity
in structure he would like the judiciary committee to look
at, so that the state is only obligated to the AGIA
requirements, not to the RFA or TransCanada's application.
TransCanada, on the other hand, is obligated to all three.
He wanted the language clarified.
MS. HARRIS understood the need for clarity in a contract
document. She stated a contract needed terms that are set
out, the rules that performance will be conducted under.
She thought the contract does that. She did not think any
court would mistake the state's three commitments under
AGIA for the 20 plus commitments TransCanada has made. She
is confident there is clarity in the contract and that she
could defend it in court.
CHAIR SENATOR HUGGINS was concerned about being in court in
Calgary.
4:47:48 PM
MS. HARRIS answered that the jurisdiction would be in
Alaska.
COMMISSIONER GALVIN stated that the question of ambiguity
has been cleared up in testimony that has been provided.
Both TransCanada and the state have stated clearly that
neither sees the state as being obligated to defend and
comply with terms of TransCanada's application. That
testimony would eliminate possible perceived ambiguity.
MR. PORTER suggested changing the language to clear up the
ambiguity.
4:49:25 PM
REPRESENTATIVE GRUENBERG asked if Mr. Porter wanted to have
a chance to go to Judiciary Committee.
MR. PORTER did not think the change had to slow the project
down. He wanted an accurate depiction of what has been
stated in testimony. He did not want to slow the process.
REPRESENTATIVE GRUENBERG asked if Mr. Porter wanted
something else to be put on the record or into another
document.
MR. PORTER referred to the last attachment on the findings,
a document legislature is going to review and pass. He
would amend that document slightly to match the intent.
REPRESENTATIVE GRUENBERG asked how that would be
accomplished. He wanted language to do that.
CHAIR SENATOR HUGGINS asked the Judiciary chairs to meet
with Mr. Porter and address his concerns.
MR. KEOUGH stated that he was staff counsel to the National
Energy Board for three and a half years.
CHAIR SENATOR HUGGINS said the hearing the next day would
be about NEB and FERC. He invited Mr. Keough.
[HB 3001 and SB 3001 were heard and held.]
4:51:57 PM
ADJOURNMENT
The meeting was adjourned at 5:35 PM (actual historical
time).
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