Legislature(2007 - 2008)TERRY MILLER GYM
07/14/2008 09:00 AM 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 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RULES STANDING COMMITTEE
SENATE SPECIAL COMMITTEE ON ENERGY
July 14, 2008
9:18 a.m.
MEMBERS PRESENT
HOUSE RULES
Representative John Coghill, 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 Kim Elton
Senator Lyda Green
Senator Lyman Hoffman
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
Senator Fred Dyson
Senator Thomas Wagoner
MEMBERS ABSENT
HOUSE RULES
Representative John Harris (AGIA Subcommittee, Chair)
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Lesil McGuire
Senator Donald Olson
Senator Bert Stedman, Vice Chair
OTHER LEGISLATORS PRESENT
Representative Bob Buch
Representative Mike Chenault
Representative Harry Crawford
Representative Nancy Dahlstrom
Representative Andrea Doll
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative Carl Gatto
Representative Max Gruenberg
Representative Mike Hawker
Representative Lindsey Holmes
Representative Kyle Johansen
Representative Reggie Joule
Representative Scott Kawasaki
Representative Wes Keller
Representative Mike Kelly
Representative Gabrielle LeDoux
Representative Kevin Meyer
Representative Mary Nelson
Representative Mark Neuman
Representative Kurt Olson
Representative Bob Roses
Representative Woodie Salmon
Representative Paul Seaton
Representative Bill Stoltze
Representative Peggy Wilson
Senator Con Bunde
Senator Bettye Davis
Senator Johnny Ellis
Senator Hollis French
Senator Gene Therriault
Senator Gary Wilken
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 COMMITTEE ACTION
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
06/05/08 (H) Heard & Held
06/05/08 (H) MINUTE(RLS)
06/06/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/06/08 (H) Heard & Held
06/06/08 (H) MINUTE(RLS)
06/07/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/07/08 (H) Heard & Held
06/07/08 (H) MINUTE(RLS)
06/08/08 (H) RLS AT 1:00 PM TERRY MILLER GYM
06/08/08 (H) Heard & Held
06/08/08 (H) MINUTE(RLS)
06/09/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/09/08 (H) Heard & Held
06/09/08 (H) MINUTE(RLS)
06/10/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/10/08 (H) Heard & Held
06/10/08 (H) MINUTE(RLS)
06/12/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/12/08 (H) Heard & Held
06/12/08 (H) MINUTE(RLS)
06/13/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/13/08 (H) Heard & Held
06/13/08 (H) MINUTE(RLS)
06/14/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/14/08 (H) Heard & Held
06/14/08 (H) MINUTE(RLS)
06/16/08 (H) RLS AT 9:00 AM ANCHORAGE
06/16/08 (H) Heard & Held
06/16/08 (H) MINUTE(RLS)
06/17/08 (H) RLS AT 9:00 AM ANCHORAGE
06/17/08 (H) Heard & Held
06/17/08 (H) MINUTE(RLS)
06/18/08 (H) RLS AT 9:00 AM ANCHORAGE
06/18/08 (H) Heard & Held
06/18/08 (H) MINUTE(RLS)
06/19/08 (H) RLS AT 9:00 AM ANCHORAGE
06/19/08 (H) Heard & Held
06/19/08 (H) MINUTE(RLS)
06/20/08 (H) RLS AT 9:00 AM ANCHORAGE
06/20/08 (H) Heard & Held
06/20/08 (H) MINUTE(RLS)
06/24/08 (H) RLS AT 1:00 PM MAT-SU
06/24/08 (H) Heard & Held
06/24/08 (H) MINUTE(RLS)
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
07/01/08 (H) MINUTE(RLS)
07/02/08 (H) BILL CARRIES OVER TO FOURTH SPECIAL
SESSION
07/08/08 (H) RLS AT 1:00 PM KETCHIKAN
07/08/08 (H) Heard & Held
07/08/08 (H) MINUTE(RLS)
07/09/08 (H) RLS AT 1:30 PM TERRY MILLER GYM
07/09/08 (H) Heard & Held
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) Heard & Held
07/11/08 (H) MINUTE(RLS)
07/12/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
07/12/08 (H) Heard & Held
07/12/08 (H) MINUTE(RLS)
07/13/08 (H) RLS AT 12:30 AM TERRY MILLER GYM
07/13/08 (H) Heard & Held
07/13/08 (H) MINUTE(RLS)
07/14/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
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
06/06/08 (S) MINUTE(ENR)
06/07/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/07/08 (S) Heard & Held
06/07/08 (S) MINUTE(ENR)
06/08/08 (S) ENR AT 1:00 PM TERRY MILLER GYM
06/08/08 (S) Heard & Held
06/08/08 (S) MINUTE(ENR)
06/09/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/09/08 (S) Heard & Held
06/09/08 (S) MINUTE(ENR)
06/10/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/10/08 (S) Heard & Held
06/10/08 (S) MINUTE(ENR)
06/12/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/12/08 (S) Heard & Held
06/12/08 (S) MINUTE(ENR)
06/13/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/13/08 (S) Heard & Held
06/13/08 (S) MINUTE(ENR)
06/14/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/14/08 (S) Heard & Held
06/14/08 (S) MINUTE(ENR)
06/16/08 (S) ENR AT 9:00 AM ANCHORAGE
06/16/08 (S) Heard & Held
06/16/08 (S) MINUTE(ENR)
06/17/08 (S) ENR AT 9:00 AM ANCHORAGE
06/17/08 (S) Heard & Held
06/17/08 (S) MINUTE(ENR)
06/18/08 (S) ENR AT 9:00 AM ANCHORAGE
06/18/08 (S) Heard & Held
06/18/08 (S) MINUTE(ENR)
06/19/08 (S) ENR AT 9:00 AM ANCHORAGE
06/19/08 (S) Heard & Held
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
06/26/08 (S) Heard & Held
06/26/08 (S) MINUTE(ENR)
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
07/01/08 (S) MINUTE(ENR)
07/08/08 (S) ENR AT 1:00 PM KETCHIKAN
07/08/08 (S) Heard & Held
07/08/08 (S) MINUTE(ENR)
07/09/08 (S) ENR AT 1:30 PM TERRY MILLER GYM
07/09/08 (S) Heard & Held
07/09/08 (S) MINUTE(ENR)
07/10/08 (S) ENR AT 8:00 AM TERRY MILLER GYM
07/10/08 (S) Heard & Held
07/10/08 (S) MINUTE(ENR)
07/11/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
07/11/08 (S) Heard & Held
07/11/08 (S) MINUTE(ENR)
07/12/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
07/12/08 (S) Heard & Held
07/12/08 (S) MINUTE(ENR)
07/13/08 (S) ENR AT 12:30 AM TERRY MILLER GYM
07/13/08 (S) Heard & Held
07/13/08 (S) MINUTE(ENR)
07/14/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
WITNESS REGISTER
TONY PALMER, Vice President
Alaska Business Development
TransCanada Alaska Company, LLC
Calgary, Alberta
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
CURT MOFFATT, Attorney, law firm of Dennis Staugman (ph.)
Washington D.C.
POSITION STATEMENT: Provided comments and responded to
questions.
BILL MOGEL, Attorney
Saul Ewing; Consultant
to the Legislative Budget and Audit Committee
Washington D.C.
POSITION STATEMENT: Provided comments and responded to
questions.
DONALD SHEPLER, Attorney
Greenberg Traurig, LLP
Consultant
to the Legislative Budget and Audit Committee
Alaska State Legislature
Washington, D.C.
POSITION STATEMENT: Provided comments and responded to
questions.
KEN MINESINGER, Attorney
Greenberg Traurig, LLP; Consultant
to the Legislative Budget and Audit Committee
Alaska State Legislature
Washington D.C.
POSITION STATEMENT: Provided comments and responded to
questions.
JEFF WRIGHT, Deputy Director
Office of Energy Projects
Federal Energy Regulatory Commission (FERC)
Washington, D.C.
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
STEVEN PORTER, Consultant
to the Legislative Budget and Audit Committee
Alaska State Legislature
Tehachapi, California
POSITION STATEMENT: Provided comments and responded to
questions.
LOYOLA KEOUGH, Attorney
Bennett Jones LLP
Calgary, Alberta
Canada
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
BILL LEIGHTY, Director
Leighty Foundation
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 3001 and
SB 3001.
JAMES H. WILLIAM
Valdez, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
HENRY STEVENS
Juneau, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
ALAN KEECH
Tok, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
WILLIAM WARREN
Nikiski, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
PAUL D KENDALL
Anchorage, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
ALFRED MCKINLEY Sr., Chairman
Legislative Committee, Alaska Native Brotherhood (ANB) Grand
Camp
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 3001 and
SB 3001.
MERRITT PIERCE, Member
Board of Directors
Alaska Natural Gas Port Authority (ANGPA)
Fairbanks, Alaska
POSITION STATEMENT: Testified during the hearing on HB 3001 and
SB 3001.
JOHN SANDOR
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 3001 and
SB 3001.
JERRY MCCUTCHEON
Anchorage, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
TOM LAKOSH
Anchorage, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
GEORGE BROWN, Pediatrician
Juneau, Alaska
POSITION STATEMENT: Representing himself, testified during the
hearing on HB 3001 and SB 3001.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the joint meeting of the House
Rules Standing Committee and the Senate Special Committee on
Energy to order at 9:18:45 AM.
HB3001-APPROVING AGIA LICENSE
SB3001-APPROVING AGIA LICENSE
9:19:07 AM
CHAIR HUGGINS reviewed the agenda for the day. Members and
presenters introduced themselves.
9:20:23 AM
TONY PALMER, Vice President, Alaska Business Development,
TransCanada Alaska Company, LLC, referred members to a letter
from the Association of Professional Engineers, Geologists and
Geophysicists of Alberta (APEGGA) on members' desks [that
describes the criteria and process for Alaska licensed engineers
to become licensed to practice engineering in Alberta.]
9:21:11 AM
CURT MOFFATT, Attorney, law firm of Dennis Staugman (ph.),
highlighted his background, noting that in 1977 he served the
Carter administration at the Federal Power Commission he served
as [counsel and staff advisor] to oversee the Alaska Natural Gas
Transportation Act[15 U.S.C. §§ 719 et. seq.] (ANGTA). He
related that he currently represents a number of pipeline
companies in the United States (U.S.). Additionally, he noted
that he is general counsel for the Rockies Express Pipeline
(REX) and the Boardwalk Pipeline Partners, LP. Mr. Moffatt
highlighted that his clients are building about $8 billion of
pipelines in the Lower 48.
9:21:58 AM
BILL MOGEL, Attorney, Saul Ewing, Consultant, to the Legislative
Budget and Audit Committee, offered to answer questions on
Federal Energy Regulatory Commission (FERC) issues. He related
that he was also involved in the Arctic gas project in the late
70s, representing the successful applicant. He highlighted that
he founded the Energy Law Journal, which is the leading
publication in this field.
9:22:48 AM
DONALD SHEPLER, Attorney, Greenberg Traurig, LLP, Consultant, to
the Legislative Budget and Audit Committee, stated that like Mr.
Moffatt, he also worked for the Federal Power Commission. He
offered that his initial experience was not gained in Alaska,
but since the early 70s he has worked for various interstate gas
pipeline companies and has represented them in all facets of the
FERC process ranging from rate cases to certificate proceedings.
He further stated that he has been involved in the Alaska
natural gas pipeline project for several years.
9:23:35 AM
KEN MINESINGER, Attorney, Greenberg Traurig, LLP, Consultant, to
the Legislative Budget and Audit Committee, highlighted that he
is co-chair of the energy practice at his firm. He said he
represents some of the largest interstate natural pipelines in
the country. He offered that he is the past chair of the Energy
Bar Association Anti-trust Committee. He highlighted that his
career has focused on FERC related work and anti-trust issues.
9:24:34 AM
CHAIR HUGGINS asked MR. Shepler to provide an overview of his
role in AGIA.
MR. SHEPLER answered that he was an advisor to the current
administration in Alaska and assisted it in drafting AGIA. He
also worked with the Alaska legislature last year during the
consideration of AGIA. In response to Chair Huggins, Mr.
Shepler advised that he has also worked on Federal Energy
Regulatory Commission (FERC) issues. In further response to
Chair Huggins, Mr. Shepler characterized his role as assisting
the legislature as to the FERC process and its "default
positions," and provided advice on which provisions to add to
AGIA such as rate making, expansion pricing, as well as
discussing the significance of filing for and accepting a FERC
certificate.
9:26:53 AM
CHAIR HUGGINS asked for further clarification on the specific
advice he provided the legislature during AGIA deliberations.
MR. SHEPLER explained that any advice he offered the legislature
is subject to the attorney/client privilege, but that he could
speak to the topics. He said he advised the legislature on FERC
issues that came up during the drafting process.
MR. SHEPLER, in response to Chair Huggins said, "Walking through
my advice to them would be problematic, as a matter of attorney
client privilege. However, I would be happy to address the
provisions of AGIA that were enacted and discuss with you their
merits and the significance of them in this context."
CHAIR HUGGINS highlighted that the legislature continually
refers to its process as open and transparent and to the extent
that it is possible it is important to do so. He offered that
Alaskans are attempting to understand legislators' reasons for
voting and that he would like Mr. Shepler to assist in that
process by providing as much information as possible.
MR. SHEPLER offered to re-frame Chair Huggin's question.
9:29:11 AM
REPRESENTATIVE SAMUELS inquired as to whether the legislature
took Mr. Shepler's advice with the provisions in AGIA or whether
the legislature went beyond his advice or did the legislature
take a different approach.
MR. SHEPLER answered that at the time of his initial
involvement, the legislature already had a draft of AGIA before
them and that much of the structure of AGIA was set out in that
original draft. He offered that he did not provide legislators
with a list of things to include or exclude, but helped them to
achieve their goals related to FERC matters. He said, "I
certainly have no problem personally or professionally with the
outcome of the legislation that has now been enacted. I mean,
I'm perfectly comfortable with the provisions that are in AGIA
as it relates to the FERC."
9:30:33 AM
REPRESENTATIVE DOOGAN inquired as to whether Mr. Wright was
present on teleconference.
9:31:14 AM
JEFF WRIGHT, Deputy Director, Office of Energy Projects, Federal
Energy Regulatory Commission (FERC), introduced himself.
9:31:37 AM
REPRESENTATIVE DOOGAN inquired as to whether the "must haves"
that refer to issues that FERC will decide provide the state any
advantages, since the pipeline company, TransCanada, is willing
to agree with the state's position on items such as rolled-in
rates. He asked panel members to evaluate whether the state
benefits in the instance in which a pipeline company agrees with
Alaska's position on issues such as rolled-in rates, assuming
that TransCanada is licensed.
9:32:32 AM
MR. WRIGHT answered that to the extent that AGIA is a state Act,
that it has no bearing on FERC actions. He highlighted the
process, such that the FERC will take an application for a gas
pipeline and evaluate it "along the lines" of the "the Natural
Gas Act" and the Alaska Natural Gas Pipeline Act (ANGPA). He
offered that to the extent provisions of AGIA can be considered
by FERC and "don't interfere with federal law or policies, then
those will be taken into account by the commissioners in
rendering their decision."
REPRESENTATIVE DOOGAN rephrased his question and asked whether
the state would obtain an advantage before FERC, if the state
and the pipeline company "come in with the same position on an
issue that FERC will have to decide."
MR. WRIGHT asked for clarity, by asking, "...are you considering
do you get an advantage over a non-AGIA proposal?"
REPRESENTATIVE DOOGAN related his understanding that if terms
were negotiated between all parties, provided they were legal,
the likelihood increases that FERC would approve the terms.
Thus, in a situation in which two parties held differing
opinions, he further inquired whether the state would be "better
off" having one less party before FERC.
MR. WRIGHT offered that the FERC will not approve provisions
based on the negotiated agreement between the parties. He
opined that FERC has specific guidelines and policies it follows
on rate consideration and even if five parties agreed on a
particular aspect that does not comport with FERC's rate-making
policy at the federal level, the FERC would not agree.
9:35:27 AM
REPRESENTATIVE DOOGAN inquired as to whether the other panelists
could also respond.
MR MINESINGER opined that it would be very beneficial to have a
pipeline company propose what the state desires. He related
that has represented a number of pipelines in major FERC
proceedings and while it is not a guarantee, given a range of
reasonable outcomes at FERC, he opined that a huge advantage
exists when a pipeline company files a project that matches a
state's plan. He referred to the 70:30 debt to equity ratio
[contained in AGIA] and that it would be desirable to have a
pipeline company agree, versus fining a 50:50 debt to equity
ratio. Furthermore, based on the findings, he stated that a
70:30 debt to equity ratio represents a significant value to the
state. Further, if a pipeline company proposes that and it is
within range of reasonable debt to equity ratios, that it is
highly likely FERC will approve that, he opined. He opined that
whether the agreement is over rolled-in rates or expansions,
that it is tremendously valuable to have agreement and would
place the state in a much stronger position than it would be
otherwise.
MR. SHEPLER agreed and said:
I would note on the debt to equity ratio, for example,
that FERC has a long standing policy to accept the
debt to equity ratio presented by the pipeline company
... whose rates are being set. So while it's
important for the pipeline company as Mr. Minesinger
said to file in a certain way, it's also important for
the pipeline company not to file in other ways. For
example,...as recently as the issuance of the FERC
decision in the [Trans-Alaska Pipeline System] (TAPS)
rate case, they imputed a capital structure for the
TAPS purposes based on a finding that the capital
structure of the [indisc.] before them was outside a
range of reasonableness to establish the group range
to be used; they went to a proxy group of other oil
pipelines, which is the same process the FERC does on
gas pipelines. In the range of reasonableness within
that proxy group on gas pipelines; it would not be
outside the range of reasonableness for the FERC to
approve a 60 percent equity ratio and a 40 percent
debt ratio, which is almost a reverse image of what
AGIA requires and would tremendously raise the rates
on the project, and the profitability of the project
to the pipeline sponsor. So, having the commitments
that come with the AGIA license to file for the 70:30
debt to equity prevents or ensures against someone
coming in and filing with...a 60 percent equity ratio
and 40 percent debt, which would in all likelihood be
approved by the FERC under their [sic] policy that is
in effect and has been in effect for several years.
9:39:58 AM
MR. MINESINGER said:
Imagine if Denali [Project] were to file for a 50:50
equity ratio. We know the state would be better off
with 70:30. We could try and convince the FERC to
order them to use 70:30 and we'd do our best. We'd
make the best legal argument we could. But,
litigation is very uncertain and wouldn't you rather
have TransCanada going in and filing exactly what you
want. It's just much easier. It puts the state in a
stronger position vis à vis this project.
9:40:29 AM
MR. MOGEL dissented. He characterized AGIA's success as a 3-
legged stool, and that currently the state has a two-legged
stool. He acknowledged that TransCanada would make its filings
in "good faith." However, he opined that this does not bind
FERC, which represents the "third leg of the stool." Thus, the
state must wait to see what FERC decides on these issues. He
offered that he did not want to argue about a debt equity ratio
that may be decided 3 - 5 years from now. But, clearly if FERC
finds a 70:30 debt to equity ratio unacceptable and suggests a
different one, that is the debt to equity ratio that the
pipeline will need to accept, depending on other conditions in
its certificate. He opined the debt to equity ratio should be
discussed since it is the underlying basis for the recourse
rate, or the cost of service rate. He pointed out that it is
not the negotiated rate. He opined that FERC will thoroughly
examine the debt to equity ratio to determine if it results in a
just and reasonable rate since that is the statutory standard.
He offered that he would not prejudge FERC's determination. He
stated that the need to obtain assurance that the state has
FERC's commitment cannot be given. Therefore, there is no way
to bind FERC with the AGIA provisions.
9:42:50 AM
MR. MOFFATT stated that he doesn't disagree with Mr. Mogel. He
said, "I believe that it is a matter of emphasis and the conduct
of prosecuting a case." He offered that he has primarily
represented applicants before the FERC. He said he thought that
it would be a tremendous advantage, given the policies that are
reflected in AGIA, to have an applicant voluntarily present
those provisions as part of their application, tariff, and rate.
He surmised the applicant would submit substantial evidence as
part of the application process to explain the requirement for
provisions in the certificate application by the present or
future public convenience and necessity - that's the legal
process and standard for a certificate. He stated that this
standard is somewhat different than the "just and reasonable"
standard that Mr. Mogel referenced. However, that standard does
have a meaning in certificate applications since the FERC tends
to grant some deference to an applicant - so long as the request
is "backed up" by substantial evidence in the record - to grant
the certificate with the provisions proposed by the applicant.
He offered that everyone agrees that no one can bind the FERC,
which acts independently. However, 50 years of precedent exists
under the Natural Gas Act and an increase pipeline activity in
the past decade. Thus, some new precedent is developing, he
opined. He said that some provisions under AGIA are slightly
different than the mainstream Lower 48 pipelines. Additionally,
FERC will "listen carefully" to an applicant who has submitted
to a process with the state to implement what the legislature,
governor and the state have found to be public policy
requirements that advance the state's interest in developing the
basin, not just to develop the currently proven reserves, he
opined.
MR. MOFFATT continued:
There's a history in this project as we all know, but
the more recent history is one that's reflected in
ANGPA as passed by the Congress that does still
require close coordination at the federal level with
the State of Alaska. That is a provision and a spirit
that is carried over from the prior 20 years of
attempting to develop this process. So, again, I
think everything that is in AGIA, with a licensee such
as TransCanada, putting forth an application under the
Natural Gas Act that reflects all of the ""must haves"
in AGIA backed up by substantial evidence in the
application, defended and prosecuted by TransCanada,
jointly with the state as an intervenors will create a
record of substantial evidence that will permit the
commission to find that the certificate should be
granted and is required by the present and future
public conveyance and necessity. That's the legal
process; that's the legal standard so I think if the
state were to go into the commission with the
applicant in sync, both supporting the provisions with
substantial evidence, my judgment is you have a very
high probability, not a certainty, not certainty as a
matter of law, but a very high probability that the
commission will grant that application. There may be
some changes, but the basics I think are within the
mainstream of public policy and the commission will
support it.
9:47:20 AM
MR. PALMER stated that as the non-lawyer on this panel that he'd
provide a "businessman's view" on a few issues. He said that
with respect to the rolled-in tolls, AGIA requires TransCanada
to do something it might do ordinarily, which is to voluntarily
apply for rolled-in tolls. He offered that is a benefit to the
state under AGIA. He pointed out that it is unknown what the
potential competitor's position is on rolled-in rates - whether
they will file voluntarily for rolled-in tolls or if rolled-in
tolls will be imposed in the event that the rolled-in tolls
would increase. He surmised, based on the testimony over the
past few days that BP, ConocoPhillips Alaska, Inc., and
ExxonMobil Corporation oppose generically rolled-in tolls in the
event that the tolls would increase. He offered, "I did not
hear Denali [Project] or BP, Conoco as owners of Denali
[Project] as to where they would be so you'd have to pose that
question to them." He stated that with respect to the debt to
equity ratio that he has spent many years testifying before the
National Energy Board (NEB) on debt to equity ratio and return
on equity. He said, "I can assure you not once ever did the NEB
increase the rate of return over what I requested, nor did they
increase my equity ratio over what I requested."
9:49:04 AM
MR. WRIGHT pointed out that an Alaska pipeline has a "unique
nature about it" due to ANGPA. He said, given that, the FERC
will consider all of the proposals, that it is up to individual
FERC commissioners to engage whether the unanimous agreement in
a filing, "theoretically could transcend policy, here." He
offered that he cannot bind the FERC. He asserted that the FERC
will operate "within the bounds of its policies" and ultimately
make recommendations to the FERC commissioners. Those
commissioners will examine the body of evidence and will reach a
reasoned decision. He opined that he cannot predict any of the
five commissioners' opinions with respect to a proposal that is
supported by the state and other parties versus a non AGIA
proposal. He said, "I don't know if that answers you exactly on
the FERC position, but I think the main thing I need to say is
that FERC cannot be committed by an agreement between a pipeline
proponent and the state at this point."
MR. SHEPLER clarified that nothing in AGIA requires FERC to
decide in a particular way; the obligations in AGIA are "merely
that the licensee must file a particular proposal." He related
a FERC adage of long ago that the "company proposes, but the
commission disposes" so nothing in AGIA dictates how the FERC
would decide the issue, just that it obtains that an issue is
presented to FERC in an manner that is beneficial to the state.
9:51:35 AM
CHAIR HUGGINS inquired as to whether Mr. Shepler could share his
advice to the state on debt to equity ratio.
MR. SHEPLER answered, "I don't recall specifically advising them
on the debt to equity ratio, Senator." However, he recalled
that the debt to equity ratio was part of the work performed
prior to his AGIA involvement. Furthermore, he noted that he
had no objection to 70:30 obligation contained in AGIA.
9:52:34 AM
REPRESENTATIVE DOOGAN commented, "Mr. Wright's answer is a fresh
reminder to us why the generation - now passing away in Alaska -
worked so hard to get statehood and get control of their [sic]
own destiny. And it's just too bad that in this issue anyway,
they didn't quite make it."
9:52:59 AM
CHAIR HUGGINS inquired as to the specific "range of
reasonableness."
MR. SHEPLER said, "...Generally the proxy group that the
commission staff is advocating be used for setting gas pipeline
rates of return and by implication debt equity structure have an
average equity ratio of about 60 percent and 40 percent debt. I
do not...recall the high and low within that range, but will
provide that for you."
9:54:00 AM
CHAIR HUGGINS recalled "that this is actually a step back from
the Murkowski administration, as I recall it was 80:20 under the
Murkowski administration.
MR. SHEPLER explained that he was involved in some of the
legislative review. However, he recalled that nothing in
contract with respect to capital structure. He offered several
years have passed and it was "a very thick contract" so he was
not certain. He said he did not think any commercial terms were
contained in the contract.
CHAIR HUGGINS inquired as to whether there is any reason not to
ask for a debt to equity ratio of 80:20 in AGIA.
MR. SHEPLER answered that an 80:20 debt to equity ratio would be
permissible under AGIA. However, he noted that the ratio needs
to be at least 70:30. He pointed out that TransCanada has
indicated in its application that once its costs are approved,
it will use 75:25 percent. He offered that a 70:30 percent is
better for the state than a 50:50 split or 60:40.
CHAIR HUGGINS opined that 80:20 would be better than 70:30. He
inquired as to whether the state considered that number 80:20.
MR. SHEPLER offered that a 70:30 debt to equity ratio has the
capital structure that has been used in past several years for
new pipeline projects. He said that suggests to him that 70:30
is commercially reasonable and that 80:20 may not be so
commercially reasonable. He recalled one of the requirements of
the administration in formulating AGIA was that it had to be
beneficial to the state, but that it also had to be
"commercially reasonable" and not outside the range of what a
"reasonable pipeline company" might be expected to find
acceptable or to propose.
9:56:22 AM
CHAIR HUGGINS inquired of Commissioner Galvin as to whether "it
was 80:20 under the Murkowski administration."
COMMISSIONER GALVIN said he did not know.
9:56:47 AM
STEVEN PORTER, Consultant, to the Legislative Budget and Audit
Committee, Alaska State Legislature, answered that the Murkowski
administration had two relevant documents, the Stranded Gas
contract - which this legislature reviewed and evaluated - and
an attachment to that contract called the LLC Agreement. He
stated that the LLC Agreement did contain a proposal for 80:20.
MR. PORTER said:
However, it wasn't that they would agree to 80:20; the
idea was that they would try to pursue that in the
market because we did not know if the market would
hold and agree to an 80:20 debt equity ratio. But,
that it was the intent of the state, and our belief,
and I think the recognition from the producers, as
well, that the market probably would handle an 80:20
debt equity ratio with the backing of Exxon,
ConocoPhillips, and BP, so there was 80:20 intent to
move forward from a financing standpoint.
CHAIR HUGGINS related his understanding that it was the
administration's position to seek 80:20; they did not have that
agreement with the other parties - the producers.
9:58:09 AM
MR. PORTER said:
Senator Huggins, they did have an agreement with the
producers to pursue 80:20 if the market would handle
it. We can't force a company to agree to a ratio that
would not be acceptable to the financial markets, but
there was an agreement to pursue 80:20 and it was our
expectation and the producer's expectations that that
would probably be the debt equity ratio of the
project.
9:58:26 AM
SENATOR THERRIAULT recalled that the LLCs were never finished or
brought before the legislature. He said, "The issue of whether
the producers would seek that, it seems like to me, they still
have the potential of doing that." He related a scenario in
which two applications advance to FERC, and under the
TransCanada license, that TC submits a debt to equity ratio
70:30 or ultimately 75:25, that it seems reasonable that the
[applicants] could argue that under the federal legislation
"they're structuring a project so that the tariff will be low"
to "incent" the development of the basin, which he characterized
as the general instructions that the Congress gave to FERC. He
offered that the producers may suggest an 80:20 debt to equity
ratio in their application, and if so, the FERC would have two
applicants, and it may approve them both, approve one, or use
its power to try to force the "two together." He opined that it
is not seem harmful for the state to have TransCanada "in the
game proposing at the very least a 70:30" debt to equity ratio.
He asked Mr. Wright if it harms the state's position -given the
Congressional position to "incent" the development of the basin
-to have one pipeline applicant "siding with the state in a debt
to equity structure that would honor the intent of the federal
legislation and in which the state as a sovereign "wants to go."
10:00:32 AM
MR. WRIGHT said:
No, I don't think there is any harm at all to having
one or more proposals before us, one of which as you
are saying might be in harmony with what the state
wants vis à vis AGIA. I think the point I'm going to
continue making is that the [FERC] commissioners will
be advised of the uniqueness of the situation. They
will be apprised of the provisions, not only of the
Natural Gas Act, which they're aware of, but also of
ANGPA, which encourages basin development. And given
the body of evidence and what's presented to them,
they can make their individual decisions and they may
decide on, for instance, as we're speaking on
different debt equity ratios. The problem I have is
not committing them at this point.
SENATOR THERRIAULT said he understood fully that FERC
Commissioners, and he as a staff member, cannot commit where
"they might go." He opined that if FERC does not issue
TransCanada a license that TransCanada could further submit a
sole application to FERC. However, he noted "there is some
question" if TransCanada would do that. He posed a scenario in
which the only applicant is the producer proposal with a 50:50
debt equity structure that falls in a FERC "zone of
reasonableness" without any competition that "is pulling them
towards a lower tariff." He inquired as how FERC would "likely
deal with that." He opined that it may not fully address where
the Congress would like to go "as far as opening up the basin."
He further asked Mr. Wright if he thought it would be beneficial
to have an applicant that has committed to go with a debt to
equity structure that is favorable to opening up the basin.
MR. WRIGHT answered, "Again, you're asking me to prejudge
things." He said he could not answer whether a non AGIA
applicant who proposed a 50:50 debt to equity ratio, is in the
zone of reasonableness. He further answered that he "can't even
predict right now that the [FERC] commission would accept that."
He opined that the FERC would look at evidence, and he is quite
sure that if a non AGIA applicant proposed a 50:50 debt to
equity ratio, that the FERC would receive "all kinds of comments
on that kind of proposal." He offered that the commission would
review acts, such as the provisions of ANGPA, which seeks to
develop the basin and "get Alaskan gas resources to the Lower
48." He said, "So I can't tell you a 50:50 debt to equity ratio
in a zone of reasonableness will be accepted. It's just too
hard to predict at this point, but I think the commission will
be open to listening to all proposals."
10:03:50 AM
SENATOR THERRIAULT said since FERC cannot predetermine, it could
in fact fall within a zone of reasonableness. It could be
acceptable; and we have been told previously that that type of
debt to equity ratio would increase the tariff by about a buck,
which is 20 percent, which would be a "terrible outcome for the
State of Alaska and detrimental to opening basin
MR. WRIGHT answered that he expected FERC would receive lots of
correspondence if that were to happen.
10:04:41 AM
CHAIR HUGGINS inquired as to which other parties can enter a
counter view.
MR. WRIGHT answered that it would be anyone who intervenes in
the proceeding and that could be a potential competitor, the
state, a state agency, a landowner, or a legislator. He noted
that anyone who can demonstrate an interest in proceedings can
be an intervener and can make comments.
CHAIR HUGGINS said he assumed that whoever advocates for the
most rational course will prevail in "a world of
reasonableness."
MR. WRIGHT offered that rational is always subjective.
10:05:34 AM
MR. MOGEL offered that predicting 4 to 6 years is as "dicey as
predicting the weather." He pointed out that the question
becomes, "What are you buying with the AGIA proposal? And
that's a commitment by the successful applicant to make these
kinds of filings." He related his understanding that everyone
agrees that "you can't bind the FERC." He offered that many
issues can affect the proposal an applicant submits that can
result in a very different outcome. He offered his belief that
TransCanada will advocate "what they've agreed to advocate and
vigorously do that and very effectively." He noted that FERC is
an adjudicatory body. He opined that current FERC commissioners
may not be commissioners five years from now, but that FERC will
adjudicate and determine what is just and appropriate and meets
statutory standards at the time it considers an application. He
surmised that is the reason why he and Mr. Wright agree that you
can't guarantee what the FERC will do. However, he stated that
the state is "buying a commitment to make a filing at a certain
level and the FERC may decide something in its infinite wisdom
that is very different because of its adjudicatory function. In
response to the Senator's question about whether they would
review a filing made by a competitor, he said he suspects there
would not be a comparative hearing such that he and Mr. Moffatt
have previously attended. He highlighted that "the pipeline
business is very different today." He characterized trying to
decide whether FERC would review a competitor's proposal with
TransCanada's proposal is like trying to predict the weather in
five years. He said he suspects that none of us can do that.
10:08:13 AM
MR. MOFFATT agreed with Mr. Mogel that "you cannot guarantee to
a certainty what the commission is going to do." He maintained
his earlier comments. He asked if the state is marginally
better off having an applicant that willingly, voluntarily will
make an application to the FERC that embodies the public policy
positions of the state than having an applicant that is not
bound to make those pleadings to the FERC. He highlighted that
the state will petition as an intervener to modify the
application of the applicant. He said, "And I submit to you,
and I hope Mr. Mogel will agree, I believe you are substantially
better off to have an applicant that is representing the public
policy positions as determined by the state."
10:09:30 AM
MR. MINESINGER echoed Mr. Moffatt's point that the issue is that
not that anyone is predicting what FERC will do, but is
determining if the state is better off if the pipeline files a
proposal that "has what the state wants in it." He said, "To
me, the answer to that is clearly yes, for the reasons Mr.
Moffatt stated.
10:10:08 AM
The committee took an at-ease from 10:10:29 AM to 10:22:27 AM.
CHAIR HUGGINS reconvened and asked members to please return to
seats [there was a long delay as this happened].
10:24:57 AM
REPRESENTATIVE WILSON related that much discussion has ensued
with respect to the debt to equity ratio. She asked Mr. Wright
to discuss what would be an acceptable debt to equity ratio for
this project as compared to other pipeline projects. She said
that she did not know between 50:50 and 80:20 what would be a
reasonable and acceptable debt to equity ratio.
10:26:20 AM
MR. WRIGHT stated that he is not a rate person and doesn't work
with debt equity ratios in his daily work. He said he really
could not respond to what is an acceptable zone of
reasonableness.
10:26:58 AM
MR. MOFFATT explained that the earlier "zone of reasonableness"
mentioned isn't limited to one right answer. He highlighted
that for a typically financed project such as this pipeline,
that an 80:20 is "the thinnest equity that the capital markets
would be comfortable providing debt for." He offered a 70:30 as
a much more comfortable range. He continued:
Many of the pipeline companies would like, if they can, [to]
file for 40 percent equity to 60 percent debt because then their
equity dollars are making money for them. So for the state to
have requested that it be no greater than 30 percent equity is
protecting the state's interests by limiting the amount of
equity that the parties could put in it. Quite frankly on a
project of this scale, I would think that most pipeline
companies would be comfortable in the 70:30 debt to
equity...because the dollars being put at risk in the equity
component are so large. And...TransCanada as you've heard has
been willing to go to 25 percent equity to make it further more
advantageous to the state. And that is a concession from the
shareholders of TransCanada because they will have less dollars
initially deployed by which they're earning a return despite the
risks that they're taking in promoting the project. So there is
no one correct answer. I think that in my judgment 70:30 as the
upper limit for the amount of equity as reflected in the
[Request for Application] RFA is well within zone of
reasonableness at FERC. Personally I don't think that would be
any type of issue in the application process at the FERC. I
think as you get thicker equity - 40 percent equity, 50 percent
equity - then as [Mr.] Wright identified, you'd probably have
some opposition from intervenors that would call that debt
equity ratio into question. But I don't think that it's likely
that [75:25 or 70:30] that's reflected in the state's RFA is
likely to draw much attention.
10:30:01 AM
MR. SHEPLER highlighted that Mr. Moffatt represents other
pipeline companies such as the Rocky Express project which is
this major 42 or 48-inch pipeline from the Rocky Mountains to
Ohio. And the FERC approved their certificate with the capital
structure is 55 percent equity, approved by the FERC in the
certificate order for that project. He surmised that the 55
percent within range is "within the range." He offered to
provide the "range document" that will illustrate the range that
FERC is generally comfortable with in terms of approving rate
setting purposes for pipelines.
10:31:09 AM
CHAIR HUGGINS offered that one of the rationales that the
legislature has heard for the $500 million incentive is to lower
the tariff rate, incorporated in the design of AGIA. He
inquired as to whether Mr. Shepler could provide advice on the
80:20 compared to a 70:30 debt to equity ratio. He related that
he assumes that the 80:20 would give us a lower tariff.
MR. SHEPLER agreed that 80 percent debt would the lower tariff,
since the return on equity is say 14 percent and the cost of
debt is 7 or 8 percent. He opined that 80:20 would certainly
lower the tariff rate compared to 70:30 debt to equity ratio.
However, a point exists in which commerciality "kicks in" and
it's more questionable as to whether projects of this magnitude
could be financed at 80:20. He offered that evidence exists
that the project is more likely to be financed at 70:30. He
highlighted that it is based on the amount that is necessary to
borrow and how much lenders will be willing to lend. He offered
that at 80 percent the banks provide 80 percent of the financing
and the applicant provides 20 percent. Thus, commercial issues
may suggest that it might be unreasonable to demand of a
licensee. Whereas evidence in one of the appendices to the
finding - a table that shows recent certificated pipeline
projects in the Lower 48, with the capital structure suggests
that 70:30 is certainly commercial reasonable based on what's
been "done and observed in the Lower 48."
10:33:43 AM
MR. PALMER pointed out that TransCanada's application, as any
application, has business and financial risks. He highlighted
that one cannot simply examine a reduction in the amount of
equity without changing the other factors since they are all
interrelated. He opined that every applicant considers those
aspects as does the FERC and the National Energy Board (NEB).
He agreed that it is true, that if all other things are equal,
such as the range of return and the business risks, if the debt
increased from 75 to 80, the tolls would fall. However, he
surmised that the state would not have a willing applicant under
that circumstance, nor would financing be available at some
point due to lenders' consideration of overall risk for loan
recovery. He maintained that one cannot only consider [debt to
equity ratio] solely. He offered that TransCanada examined the
requirements in AGIA and submitted an application that addresses
business and financial risks, resulting in a balanced and
"aggressive" proposal.
CHAIR HUGGINS inquired as to whether Mr. Shepler could provide
any elements from the Goldman Sachs analysis with respect to
[debt to equity ratios.]
10:35:44 AM
MR. SHEPLER answered no. He stated that he did not have any
contact with Goldman Sachs during the drafting [of AGIA].
MR. MINESINGER commented that last year, Greenberg Traurig
prepared a table that listed a number of debt equity ratios
granted in FERC certificate proceedings. He recalled that in
the past 5 or 6 years, 70:30 is most common. He opined that a
debt to equity ratio of 80:20 is "pushing the envelope." He
noted that he did not recall an 80:20, which "sounds like an
unusual number" which he surmised may be due to business
reasons. He offered that it "might be doable but that it
certainly is pushing the edge of the envelope." He further
recalled that it never came up in the drafting of AGIA, and if
it had, Greenberg Traurig would have said that a debt to equity
ratio of 70:30 "sounds right from an industry standpoint just
like the other provisions of AGIA are commercially reasonable
and we at Greenberg Traurig wholeheartedly agree."
10:37:57 AM
MR. MOGEL said:
My point is a little bit different from what the rest
of the panelists, I think, are advocating. My point
is simply this: 'If you're voting on AGIA, you are
not voting buying certainty as to the debt equity
ratio because the decider on that is the FERC and
that's all.' I'm not going to disagree and I can't
disagree with the ranges that have been talked
about...but the point is, 'What are you buying with
AGIA?' And you're buying a commitment...for TC Alaska
in this case to file for a certain debt equity ratio
for their recourse rate - and they will do that - and
it may be acceptable; it may not be acceptable; it may
be tinkered with, but you're not buying certainty.
10:39:00 AM
MR. SHEPLER stated that he doesn't disagree that FERC will make
the final decision. He reiterated that AGIA did not attempt to
commit the FERC outcome. However, the larger question is what
the state acquires for the $500 million. He remarked:
There are some other things beyond 70:30 and I'll just
tick off a few of those. The FERC cannot compel
anybody to make a certificate filing. AGIA commits
the licensee to file for a certificate. The FERC has
not compelled any pipeline to solicit the market for
expansion requests. You're getting that with AGIA.
The FERC cannot require an applicant to accept a
certificate. You're getting that certainty with AGIA.
You're getting the commitment of 70:30 ... and you're
also getting the commitment to file for rolled-in
rates up to the 115 percent for expansions. So
there's more to AGIA and more to the license and what
the state is getting than just the 70:30 and I just
wanted to highlight those other points.
10:40:46 AM
SENATOR WIELECHOWSKI related his understanding that FERC will
not commit to rule one way or another. He inquired as to
whether Mr. Mogel would rather have an applicant supporting the
state's position or one that is neutral or opposing our
position.
MR. MOGEL said:
I think there are several benefits for an applicant
supporting the state's position, whether AGIA
accomplishes that I can't come to that conclusion.
You've got that hard job. I'm not taking - going to
take on that responsibility - to tell the state what
to do, or this body what to do. Certainly an
applicant who's committed to AGIA's so called "must
haves" is advancing the state's interest if indeed
that's what the state wants. I don't know any other
way to say that, but my point is, that you're just
building a stool with two legs and we're waiting to
see what the third leg is going to look like. And
with that understanding I think that's what I would
put in my decision-making process, but I'm not going
to sit here and tell the state what to do by any
means, what's best for Alaskans is way beyond
something I would - field to - give an opinion on.
10:42:09 AM
SENATOR WIELECHOWSKI said:
Just a follow-up, I understand that, that it's a very
distinguished panel who (sic) probably represent many
of the pipeline owners all throughout the United
States (U.S.) and elsewhere. Historically speaking,
perhaps you could give us some kind of insight into if
an applicant has a well-prepared application and the
support of the interest owners such as the
jurisdiction, is FERC likely to significantly change
that application?
MR. WRIGHT answered that if the FERC has an application before
it that is well supported, well constructed, and makes some
proposals within "zones of reasonableness" that it's likely that
the application will be looked on favorably. He characterized
unanimous support as a "great thing" and a "great plus."
However, he said, "I can't talk about particulars that I don't
know about but I would say unequivocally that a well supported,
fully supported application, well constructed is a plus; it's a
plus for our consideration."
10:43:33 AM
MR. MOFFATT observed that first, it is important to recognize
that FERC is the only agency in the federal government whose
primary function is to authorize and encourage energy
infrastructure development in an environmentally acceptable
manner. He noted that all other federal agencies are resource
agencies protecting other resources. The FERC is focused on
assisting to build energy infrastructure that the United States
needs, he opined. He further opined that the FERC is well aware
of balancing all of the interests -the commercial, finance, and
environmental interests, as well as other aspects of the public
convenience and necessity. He opined that the FERC respects the
ability of the pipeline companies to work through the multitude
of issues that confront the development of any project. He
offered that Mr. Wright just said that if it is well
constructed, "well thought out" and well supported, that the
FERC's function under the Natural Gas Act is to encourage the
granting of the certificates and building the infrastructure
that the public convenience requires. He pointed out with
respect to the Alaska pipeline, that the Congress has found this
project to be one of national interest multiple times. Thus, he
surmised that the agency is going to do everything possible to
work favorably upon an application. He related an example of
the Rockies Express project that will bring gas from the San
Juan basin to Clarington, Ohio and is a $5.5 billion pipeline
project. He noted that the project was initiated with the FERC
in September, 2005 and is currently undergoing the last 700
miles of construction, and should be complete next year. He
summarized that over a period of four years, this 42-inch
pipeline that stretches "all across the country" provides an
example of FERC's ability to certificate projects. He discussed
other projects to illustrate FERC's involvement and the pipeline
companies' ability to construct pipelines. He concluded by
saying, "My history has been that the FERC is in the business of
trying to get infrastructure built. They are used to working
with all the intervenors down to individual landowners, state
and local governments, as well as the applicants and
competitors." He related that last year was "their biggest year
ever." He said, "I think as a federal agency they'll be a good
partner, they'll be a fair partner, and again, I submit, what
you've asked for in AGIA in setting your public policy interest
is not outside the mainstream. You may not get everything you
want and ask for ... but you're going to get the bulk of it."
10:48:41 AM
MR. WRIGHT explained that last year the FERC started about 2,700
miles of pipeline and since year 2000, the FERC has overseen
12,000 miles of pipeline. He agreed with Mr. Moffatt that the
FERC "can get the job done." He pointed out that is due to the
pre-filing process and that needs to begin as soon and as
expeditiously as possible and that is "where a lot of problems
are ironed out. He said, "I'm not going to tell you that
everything that comes in the door at FERC goes out the same way
it comes in, but a lot of things come in the door and issues and
conflicts are resolved in the pre-filing and things go a lot
smoother during the application process.
10:49:30 AM
MR. SHEPLER observed that it is important to have an application
pre-filed at FERC, to ensure that the state's interests are
fully protected. He suggested that in the absence of approving
[the TransCanada] license, that the alternative might be a one-
legged stool, which is a situation in which the state has no
input except with the litigation process at FERC "in the shape,
and form, and terms of the proposal." He suggested that last
year the state determined the state's public policy interests in
the commitments contained in AGIA. He opined that in approving
the [TransCanada] license, that the state will gain the
commitments will be included in [TransCanada's] application
before the FERC. He said, "Without the license you don't have
that assurance."
10:50:43 AM
MR. MOGEL pointed out that several factors should be considered.
He said:
One, we don't know what kind of intervener opposition,
if any, will occur at FERC and that could be very,
very significant to the shape of the project, as well.
And there's a lot of discussion. I think Mr. Wright
just said if we get an application, we'll tinker with
it to make it the best possible application through
the pre-filing process. Well, one of the issues, of
course is the policy at FERC, not to certificate
pipeline that in their [sic] view have financing
issues or throughput issues, or a range of issues.
And those have to be cured, and they may be very well
cured in the pre-filing process. I don't doubt that.
But those are factors to be considered, the intervener
opposition and the merits of the application once it
gets through the pre-filing process.
10:51:41 AM
CHAIR HUGGINS inquired as to whether Mr. Shepler would advocate
for an additional project like the Denali Project so the state
"would not have a one-legged stool."
MR. SHEPLER answered that he was not advocating for additional
applicants, but that with the AGIA commitments the state obtains
the assurance that the application will initiate the FERC
process, thus, protecting the state's interest pursuant to the
"must haves" and other provisions in AGIA. He said, "That
without those commitments, the state is subject to 'whatever
walks in the door' and this way the state has some control over
what 'goes in the door' for the license project, whereas you
have none for what may 'go in the door' under the unlicensed
project."
10:52:53 AM
REPRESENTATIVE SAMUELS commented that it's interesting that
"we're arguing about making sure that the state's position is
held by the pipeline company." He stated that he could make a
legitimate argument that since one cannot predict what will
happen in 10 years, that TransCanada will argue for rolled-in
rates and the state will adamantly oppose them. It depends on
"who finds gas, how large the find is and that the 115 percent
is something the state will actually take the opposite side
of..." He said, "We don't know what the tax rate is, where the
structure is, how big the find is and that you may end up
not...we're asking for something that we do not know ... 10
years from now if that will be the state's position." He
recalled the Trans-Alaska Pipeline System settlement
methodology, which he said, "is the crux of all the hard
feelings" among the producers, the administration, and the
citizens during the past 20 years. He opined that the state
"signed a deal only to find out, we didn't like the deal." He
offered that the state attempted to anticipate what Alaska's
best interest would be and while the contract represented a good
faith effort that the state erred in signing the contract.
REPRESENTATIVE SAMUELS inquired about subsidies, in which the
presumption is a rolled-in tariff up to 115 percent, but during
expansions the current shippers cannot subsidize new shippers.
Her asked for further clarification of the FERC's decision
making process regarding the rebuttable presumption during
expansions and how that would differ from rolled-in tariff rates
if tariff rates dropped, but do not rise again.
10:55:33 AM
MR. WRIGHT answered:
Well, there's the rebuttable presumption, that rates
for any expansion will be determined on a rolled-in
basis. And, that is, initially we'll look at when you
roll in the cost for an expansion, what is going to be
the effect on rates. And basically, saying as a
rebuttable presumption...First, we'll presume that you
can roll it in, obviously calling it a rebuttable
presumption puts it out there for debate. We
can't...I guess...the easiest way to put it is to our
first look is to rolling in all expansions unless it's
an expansion that's required under Section 105 (b) (2)
of ANGPA. That explicitly states that we will not
require the existing shippers to subsidize, so, if
there is an expansion under that, where someone
actually requests expansion, those will be rolled-in
rates unless there's subsidization and then you will
get an incremental rate...kind of a rambling, little
explanation. Is there something you want to follow up
with me on that?
REPRESENTATIVE SAMUELS offered that he would like clarification
on what the FERC would consider a subsidy. He posed a scenario
in which the tariff rate is set at $3 and that rates were
rolled-in, and "everyone was a winner down to $2.50." He
inquired as to whether it would be a subsidy if the next
expansion "went to $2.75" since the "$3 people are still making
money, the people who got in at $2.50 are probably mad."
10:57:17 AM
MR. WRIGHT answered that "you go rate case to rate case." He
continued:
You start out at the $3 level - you have some chief
expansibility -it gets you down to $2.50 all rolled in
rate; $2.50 is your recourse rate. It's your cost-
based rate. You have another expansion. It goes back
up to $2.75. Now this may be subject to somebody
else's interpretation, but at that point I would say
you have subsidization going on there because it's
raising the system level of rates. You're not going
back to the initial rate. We're going back to the
rate that's in effect when a rate case is filed; to
roll in the cost of new facilities.
MR. SHEPLER related his understanding that the commission left
it open to debate under the relevant 2005 or 2005 A FERC order.
He continued:
When you are starting at $3, go down to $2.50, and
until you get back up to $3.00 - whether any increase
from that $2.50 to $3 would constitute a subsidy. And
then there's also discussion about whether it could go
above the $3 rate before there would be a subsidy in
light of the arguable subsidies that the initial
shippers received through the federal loan guarantees
and the accelerated depreciation that would come with
this project. I can provide citations to this, but
could you - maybe it would be helpful for all of our
understanding - to understand how the staff, at least,
feels about the subsidy in that scenario given the
language of [FERC] Order 2005.
10:59:29 AM
MR. WRIGHT answered that he thought it was part of the
rebuttable presumption language. He offered that FERC will
evaluate tariff rates at that time. He said he would defer to
Mr. Shepler's knowledge of the 2005 A language, but that there
are not any "hard and fast" rules about what will be considered
a subsidy. He maintained that the FERC will review these
matters when the issue comes before the FERC.
MR. PALMER responded that there is no question that in the event
that rolled-in tolls go up, that the state could see an increase
in the tolls if the gas is not obtained from state lands.
However, he opined that tariff rates represent the direct impact
to the state. However, the state is not solely a "royalty
collector" since it is also interested in developing the state.
He offered that if natural gas development occurs on federal
lands in Alaska that the employment and spin off effects will
also occur in the state. He opined that the state has already
considered the overall effects in developing its public policy.
He noted that much of the discussion has surrounded the direct
impact to Alaska, but that the state will benefit from huge
indirect impacts in terms of the [gross domestic product] GDP,
employment, and the development of the state.
11:01:30 AM
REPRESENTATIVE SAMUELS agreed with Mr. Palmer with respect to
the private sector activity. However, he maintained that it is
difficult to predict what will happen 10 years from now. He
highlighted that even though the state requires under AGIA that
TransCanada must request certain things in its pre-filing
application with the FERC, that it is possible that the state
will be "on the other side of the issue" at some point. He
said:
Some will agree with what we're requiring you to say.
There will be different varying degrees, but to say
right now we're always going to agree with what we're
requiring you to say, I think is a fallacy. I don't
think that will come true. I just don't want any
illusions in any of the member's positions.
MR. PALMER offered his respect for Representative Samuel's
comments. He said:
I think what we're dealing with here and what we've
dealt with on a number of scenarios is the likelihood
of that occurring. I don't dismiss that as a
potentiality. However, I think the state will look
for development of its state's economy whether it is
gas coming from state lands or federal lands. I don't
dismiss the possibility, but I don't believe it is
likely that the state is going to oppose development
of its state, and its economy, and its employment in
the event that the tolls on this pipeline are going to
increase by 15 percent.
11:03:20 AM
CHAIR HUGGINS inquired as to whether Mr. Moffatt has encountered
circumstances, such as the $500 million incentive to TransCanada
and the AGIA provisions that require TransCanada to request
certain things in the FERC certificate in other projects.
MR. MOFFATT said, "Let me state the obvious. There's nothing
normal about this pipeline project." He stated that he was not
aware of a parallel project in the Lower 48 that matches the
state's intimate involvement by creating incentives to develop a
project and overcome the hurdles largely due to its remoteness.
He further offered that the most similar project would be the
Wyoming Pipeline Authority. He pointed out that his client is
Kinder Morgan [Energy Partners LP], which is the actual sponsor
of Rockies Express. He offered that "we've all worked with the
Wyoming Pipeline Authority, but they've never gotten to the
degree of involvement that the State of Alaska has found it
necessary to follow here." He related that the state is in a
unique position, but that the FERC staff has expressed a
willingness to entertain the [TransCanada] application and given
the findings of the Congress of the need for this pipeline, the
FERC may grant a certificate. He disagreed with Mr. Mogel,
relating that the FERC granted a certificate "where there were a
lot of uncertainties and that was the Alaska Natural Gas
Transportation System certificate 30 years ago." He highlighted
that the Congress instructed the FERC to issue the certificate
in 1977. He opined that the granting of a certificate alone
does not guarantee that the project will happen since it
requires shippers, gas, and financing. However, he stressed
that it is clear that the obligation [for TransCanada] to file
the certificate establishes a fundamental tenet that the state
felt was important. He opined that AGIA "does not permit anyone
from holding up development of the pipeline by not bidding in
the open season." He opined that without the requirement for
pre-filing with FERC in AGIA, that the producers could "sit in
the sidelines in the open season and basically, veto the
project." He surmised that the state has anticipated 10 to 12
years in advance of the in-service date of the project that
producers do not have veto authority over it. He asked, "Will
that get the job done? I don't know, but it certainly moves
it...down the road."
11:07:53 AM
MR. MOFFATT, in response to Chair Huggins, related that he has
not previously encountered the [incentives].
CHAIR HUGGINS offered the Denali Project as another way for the
state to obtain a gas pipeline. He suggested that it is not
unreasonable to consider that the Denali Project has a head
start since it has already pre-filed an application with the
FERC and has made expenditures. He inquired as to how this will
affect TransCanada's efforts to pursue a FERC certificate, if
the Denali Project is able to obtain adequate firm
transportation (FT) commitments.
MR. MOFFATT related that he is not aware of any commitment by
any owner of natural gas to commit gas to the Denali Project.
He characterized the lack of commitment as a missing element and
part of the reason that the administration and the legislature
adopted AGIA.
11:09:28 AM
CHAIR HUGGINS asked Mr. Moffatt to make an assumption that the
Denali Project had already obtained FT contracts and inquired as
to the impact of FT commitments on TransCanada's ability to
obtain a FERC certificate.
MR. MOFFATT answered that in the event that the Denali Project
obtains FT commitments for gas that the FERC would have reason
to act favorably on its application. However, he highlighted
that doesn't mean that the FERC can't also authorize a
certificate for TransCanada. He recalled that Mr. Robinson and
Mr. Wright previously noted that the FERC can find multiple
projects as required by the public convenience and necessity.
He mentioned two such current projects from the Barnett Shale,
the Midcontinent Express Project (MEP) primarily sponsored by
Kinder Morgan Energy Partners LP; and the Gulf Crossing Pipeline
Project primarily sponsored by Boardwalk Pipeline Partners LP.
He offered that neither project initially had 100 percent
subscription agreement. He explained that MEP filled up first,
and that Gulf Crossing has significant additional capacity that
is unsold. However, Gulf Crossing obtained its FERC certificate
first and is currently in construction, he noted. He further
explained that MEP anticipates its FERC certificate in August
and it will proceed accordingly. He reiterated that the FERC
has that authority. He offered that in instances in which
significant capacity is unsold that the pipeline company can
take the responsibility and risk for the unsold capacity and can
design the rates for recourse rate purposes such that it can
stipulate that the cost cannot be placed on other shippers.
CHAIR HUGGINS inquired as to whether those projects compare with
Alaska's pipeline project.
MR. MOFFATT answered:
You have various scenarios that develop as to the
level of subscription, and whether the commission will
authorize them when they are not fully subscribed.
Admittedly, they had some precedent agreements. If
the commission has numerous tools at hand, rate
making, putting the risk on the applicant, and in the
notice to proceed process holding up actually having
any environmental impact until they're convinced that
the project is financed, and that the applicant's
willing to take the risk. So...they're also large
projects. They're 1.8, 1.5 Bcf/day, and they are all
in excess of a billion, a billion and a half dollars.
11:13:27 AM
MR. MOGEL opined that a certificate from FERC is very valuable.
He offered that one of the benefits of the certificate holder is
that it has the right of eminent domain, which means it can
condemn property in the state along the proposed pipeline route.
He surmised that given that one issue alone that it is highly
unlikely that the FERC will issue two certificates for two
pipelines. He further opined that the right of eminent domain
will be a very large factor in reviewing "so called" competing
proposals.
11:14:16 AM
MR. MINESINGER related that one condition that FERC attaches to
any certificate is that "before you dig, before you turn a
shovel of dirt" the FT contracts must be filed. He opined that
landowner and eminent domain issues will not actually occur
until the FT contracts were filed. However, Mr. Moffatt stated
precedent exists, such as the Gulf Crossing Project being
certificated with a significant amount of space not committed by
FT contracts. He opined that Alaska is more likely to get a
certificate due to ANGPA, in which the Congress explicitly
determined a national need for this pipeline. Thus, even with
less than full subscription, the state has a "leg up" and while
no guarantee exists, ANGPA already has determined the national
need for an Alaskan pipeline project, he surmised. He recalled
that FERC staff indicated that it certificates multiple projects
and the market "works out" which project gets built. He offered
that a small number of producers control a large amount of gas
in Alaska whereas in the Lower 48 typically more shippers exist.
He surmised that the shippers made it clear in their comments
made during the AGIA process, that they will not sign firm
contracts to support a pipeline without favorable fiscal terms.
However, if the producers were to sign unconditional firm
contracts on a Denali Project pipeline, that TransCanada still
has an obligation under AGIA to move forward and to file for a
FERC certificate. He characterized that obligation as a
distinct value to the state by keeping process moving. He noted
nothing guarantees that Denali Project will keep moving forward.
He surmised that the AGIA process has "spurred" the owners of
the Denali Project to take the action thus far. One benefit of
AGIA is to keep that process moving forward. Additionally,
other benefits exist, including that the state could "avail
itself of TransCanada's work product on this pipeline if it
comes to that." He maintained that having TransCanada move
forward with a FERC certificate has a distinct value to state
regardless of what happens during an open season.
11:18:20 AM
MR. WRIGHT agreed that ANGPA establishes the "need" for a
pipeline. He explained that the FERC pipeline certificate
policy requires a "showing of need." However, he highlighted
that requirement does not necessarily mean "executed contracts"
but could also be met by studies or reports. Therefore, to say
one project sponsor has a "leg up" by having FT contracts signed
does not really provide the sponsor with an advantage. He
opined that FERC would process both applications and in theory
could approve both. Furthermore, he highlighted that FERC will
not allow two pipelines "to be dug." He noted that an outside
possibility exists that each project could obtain FT contracts
for all the capacity, but "that's not going to happen." He
said, "We're going to see one pipeline come in with contracts
for its capacity and then, and only then is FERC going to allow
the environment to be disturbed to put that pipeline in the
ground."
11:19:47 AM
CHAIR HUGGINS agreed with Mr. Wright that one certificate will
be issued. He asked the consultants to weigh in if they felt
strongly that more than one certificate would be issued.
MR. SHEPLER related that he could certainly foresee a scenario
in which two certificate applications are submitted to FERC. He
opined that FERC may issue two certificates knowing that only
one physical pipeline will be built. He further opined that who
builds the pipeline will be sorted out by the market and which
pipeline obtains the contracts and financing.
11:21:06 AM
REPRESENTATIVE GARA inquired as to whether the TransCanada
proposal is disadvantaged by not approving [its license] now, as
opposed to approving it two or three weeks from now.
MR. WRIGHT answered:
I would just like to say one thing on the matter. The
longer delay there is the less chance field work will
be able to done this summer. And what the effect is
of that, no matter who the proponent of the project
is, that will affect the in service date of any
Alaskan pipeline. And that means less money coming
back to the state, that means less gas coming down to
Lower 48 in a timely manner.
REPRESENTATIVE GARA expressed concern that by delaying
TransCanada's ability to file a pre-application, that the
legislature is disadvantaging TransCanada. He agreed that the
state disadvantages itself, but he reiterated his concern that
the delay disadvantages TransCanada in obtaining a FERC
certificate.
MR. WRIGHT answered, "I don't believe they are being
disadvantaged at all in terms of getting consideration from FERC
for a license or what we would call a certificate of public
convenience and necessity. Just, it would affect the ultimate
in-service date."
REPRESENTATIVE GARA said he assumed "the folks not responding
agree with that answer."
11:23:56 AM
REPRESENTATIVE GARA offered that the state has asked for a 70
percent debt to equity ratio to keep the tariff down and the
state's "take" as high as possible. He inquired as to what
legal standard the FERC would apply to debt equity ratio and if
it would be, "can they get stable, good strong financing at
70:30" in its consideration of a debt to equity ratio in an
application.
MR. WRIGHT answered:
Well, FERC in the Section 7 filing of the Natural Gas
Act is trying to find what is in the public
convenience and necessity and that is a rather wide-
ranging kind of goal. I'm not an attorney and many
others on the panel may debate this. We go by...in
determining...rate aspects of a project by commission
precedent and by policy. I can't put my finger on any
one law or statute that governs debt equity ratios but
it is more the body of work and the evolution of rate-
making at FERC that comes into play and that probably
transcends a lot of other rate-related issues as well.
11:25:51 AM
MR. MINESINGER said:
I think the standard, in general, is for FERC to look
first to the actual debt to equity ratio of the
pipeline applicant before it. And if that is within a
range of reasonableness...it's going to be approved
typically. If it's outside the realm of what FERC has
approved in the past, then you could have an issue.
So, because that's the standard, it gives the pipeline
company submitting the application a degree of
discretion, if you will, in deciding - I think Mr.
Palmer talked about this earlier; there are many
considerations that go into what debt to equity ratio
would a pipeline propose for its initial rates - so
long as you're within that range of reasonableness the
pipeline has some discretion there to pick the debt to
equity ratio they want. Hence, the benefit of AGIA,
which locks in TransCanada to file for a 70:30, ... is
very advantageous for the state.
REPRESENTATIVE GARA inquired as to whether the range of
reasonableness refers to the financing not being so extreme that
they can't get the financing. He said, "As Mr. Palmer said we
probably can't get 99 percent financing, is that reasonable in
terms of being able to get the financing."
MR. MINESINGER offered that typically what arises more
frequently at FERC is when a pipeline files for a debt equity
ratio that "has a lot of equity in it, which produces a higher
rate" since part of FERC's job is to keep rates reasonable for
consumers of natural gas throughout the country. He opined that
this happens more often in rate cases, and not so much during a
certificate proceeding when pipelines have proposed too much
equity in their rates, which results in too high a [debt to
equity ratio] rate. He noted that typically controversy does
not happen when a debt to equity ratio is too low. He said,
"It's usually the other way around."
REPRESENTATIVE GARA inquired as to whether 70:30 and 75:25
proposal by the state falls in the range of reasonableness.
MR. MINESINGER answered, "Yes, very much so, particularly in a
certificate proceeding - 70:30, 75:25 - those are from the
state's perspective and from a rate payer' perspective about as
good as it gets."
11:29:13 AM
MR. SHEPLER surmised that FERC's concern is an applicant has too
much equity, which will produce very high rates. He surmised
that the FERC is not concerned over applicants with too much
debt, which would lower tariff rates. He offered that the
problem for pipeline companies is how much debt "will the
bankers provide and how much can they actually finance." He
surmised that the FERC would "love" 100 percent debt financing
for rate purposes, but the banks would be "very leery of that
and you get into the questions of commercial issues that Mr.
Palmer was addressing."
11:30:13 AM
REPRESENTATIVE GARA inquired of Mr. Palmer, as to whether
TransCanada will be prejudiced if the legislature doe not take a
vote now and delays taking the vote at the end of special
session and whether it would affect the company's field season.
MR. PALMER recalled his response that in the event that
TransCanada had a decision by July 1 that it would be beneficial
to TransCanada and would advance them two months in its
schedule. He noted that if TransCanada knew tomorrow, July 15,
2008, that would help and would save a modest amount of time on
the published schedule.
11:32:00 AM
CHAIR HUGGINS reviewed of the time schedule noting that the
legislature received this [proposal] on June 3, 2008, and that
the legislature authorized 60 days for its review. He noted
thst
that currently the legislature is on the 40 or 41 day, and
said that he hopes the legislature will complete its work prior
to the 60days allowed. He characterized the process as one of
gathering information and as an informative process.
11:32:45 AM
CHAIR HUGGINS announced that the committee will recess until
1:30 p.m.
1:51:19 PM
CHAIR HUGGINS reconvened the meeting at 1:51 p.m.
1:52:21 PM
REPRESENTATIVE BOB ROSES recalled an earlier discussion and
noted that the FERC would take into consideration concerns by
any intervenors. He further recalled discussions on "withdrawn
partner liability" and offered that FERC has required filing of
periodic audits of pipeline companies. He further noted that
TransCanada has formed TC Alaska LLC as a specific entity. He
pointed out that the legislature was advised that partner
liabilities will not be an issue. However, in the event that
partners have not settled with [TransCanada] and subsequently
become intervenors, he inquired as to any potential
ramifications related to decisions on tariffs or certification.
MR. WRIGHT stated that he cannot provide an answer with respect
to the disposition if any issue relating to [partner
liabilities] is raised by intervenors. He offered that if the
matter is raised as an issue by any intervenors and merits
discussion, that the FERC will certainly examine any
ramifications and implications. He said, "Right now I'm
peripherally aware of the issue but until we see a full blown
presentation, I cannot comment on how we would dispose of that
issue at this point." He further stated that all issues raised
by intervenors will be addressed by FERC.
1:54:57 PM
REPRESENTATIVE HAWKER recalled earlier testimony in which FERC
staff commented on a proposal with FT and one without. He
surmised that his sense was that "it really doesn't make an
awful lot of difference." He expressed concern with the
conclusion in FERC's fifth report to Congress that stated a
project sponsor may file a certificate application for a natural
gas pipeline without FT commitments. He quoted, "However, this
would be a less than desirable situation." He surmised that the
conclusion seemed a little incongruous with this morning's
testimony and asked for clarification.
MR. WRIGHT answered that not having shippers lined up would be
"less than a desirable situation" given the financial commitment
and commitment of resources for the pipeline. However, he noted
that nothing prevents the FERC from processing an application
without FT. He pointed out that ANGPA establishes a presumption
of need. Therefore, it is not necessary to presume need by
virtue of contracts. He characterized the FERC report mentioned
as providing an opinion that if a pipeline had the shippers
lined up that the project would proceed more expeditiously.
REPRESENTATIVE HAWKER related his understanding then that no
legal impediment exists and that FERC's report to Congress is an
opinion of how to best proceed.
1:57:56 PM
SENATOR WAGONER commented, "I have sat on a one-legged stool
many times with my head up against the flank of a milk cow so
sometimes one-legged stools are very necessary pieces of
equipment."
1:59:05 PM
The committee took an at-ease from 1:59 p.m. to 2:01 p.m.
2:01:28 PM
CHAIR HUGGINS related Mr. Keough's background as chair of the
Bennett Jones LLPs regulatory department, who appears before the
National Energy Board (NEB), the Alberta Energy and Utilities
Board as well as the British Columbia Utilities Commission and
the public utilities boards of the Yukon and Northwest
Territories, and represents clients before a variety of other
government bodies and agencies as part of project development
work. Prior to entering private practice, he acted as counsel
to the NEB and also spent several years with the Federal
Department of Energy, Mines and Resources, he stated. Mr.
Keough speaks on the subject of procedures, approvals, and
necessary applications involved in exporting gas to the U.S. and
on recent legislative and regulatory developments in the oil,
gas and electricity fields. [Additionally, Loyola has co-
authored a chapter on the National Energy Board for a multi-
volume publication by Matthew Bender entitled Energy Law and
Transactions. Mr. Keough is an appointed director of WBI
Canadian Pipeline, Ltd., Interenergy Sheffield, Pipeline Ltd.
and Nytis Exploration.]
CHAIR HUGGINS asked Mr. Shepler to provide an overview of a memo
he provided to the committees.
2:02:44 PM
MR. SHEPLER related that with respect to the range of commission
approved capital structures that he has provided Chair Huggins a
memo from Greenberg Traurig dated in 2007 as part of the
"findings packet appendix" which highlights the capital
structure of a number of pipeline projects that were certified
by the FERC. He referred to a table that shows the average debt
of the approximate 25-30 pipeline companies listed as 66
percent, with a high debt structure of 75 percent and a low debt
structure of 35 percent. He opined that generally speaking any
capital structure with debt between 35-75 percent would be
within a range of reasonableness that the FERC might accept. He
explained that the converse of the percentages highlights that a
company with 35 percent debt has 65 percent equity and a company
with 75 percent debt has only 25 percent equity. He suggested
that the range is broad and that the 70:30 capital structure
mandated by AGIA is commercially reasonable.
CHAIR HUGGINS offered to provide a copy of the memo to members
who wish to have one. He recalled that three companies listed a
75:25 debt to equity ratio.
2:05:13 PM
LOYOLA KEOUGH, Attorney, Bennett Jones LLP, Calgary, Alberta,
introduced himself.
2:05:36 PM
REPRESENTATIVE FAIRCLOUGH recalled testimony given at the
Fairbanks hearing regarding current transportation funds
remitted to Canada to [perform maintenance] for the Alaska
Highway may be zeroed out. She inquired, with respect to his
experience with NEB, what costs are allowed for maintenance,
specifically maintenance of a highway route inside Canada.
MR. KEOUGH answered that he was not sure that would be a normal
type of expense that would be included. He said he thought that
some connection would need to be made that demonstrates the
necessity to maintain the highway to enable access to the
pipeline in order to have a reasonable chance of having it
included in the pipeline's revenue requirement. He suggested
that if maintenance of the highway for passage of vehicles was
unrelated to the pipeline that parties could challenge the
reasonableness of its inclusion. He said he was not aware of a
circumstance in which such a charge was allowed. He noted that
if roads must be maintained to allow access to pipeline
facilities the maintenance costs have been allowed.
2:08:37 PM
REPRESENTATIVE FAIRCLOUGH specified the highway portion that
runs through Canada and inquired as to whether if the highway
becomes eroded due to truck traffic and construction, if on a
limited basis the NEB would consider including the cost of
resurfacing the highway portion in the tariff.
MR. KEOUGH opined that an argument could be made that the road
needed to be maintained to ensure access to pipeline.
2:10:01 PM
REPRESENTATIVE FAIRCLOUGH posed an example of heavy truck
traffic on the Haul Road to the North Slope and explained the
difficulty the state had to attempt to maintain the road. She
expressed concern that the proposed project construction would
affect the Alaska Highway and will require increased maintenance
costs for Canada and the United States. She inquired as to what
extent the firm transportation (FT) costs would be affected.
She related her understanding that Mr. Keough concurs that if a
nexus can be made between the need for road improvement due to
increased activity associated with the pipeline construction
that NEB would consider including the maintenance costs.
MR. KEOUGH noted his agreement. He pointed out that an argument
could be made that if the highway did not exist greater costs
would be incurred to build it.
2:11:57 PM
REPRESENTATIVE FAIRCLOUGH commented that it is important as the
legislature reviews the reauthorization of the federal dollars
in the appropriation to Canada to maintain the Alaska section of
highway that it would be increasingly valuable to Alaska to
ensure that the funding is maintained.
REPRESENTATIVE OLSON inquired as to whether the treble damages
provision is unique to AGIA or if other natural gas lines have
similar provisions.
MR. MOGEL answered that it is unique project and that he is not
aware of any other project that closely resembles this project.
MR. SHEPLER noted his agreement.
MR. PALMER offered that when TransCanada's main line was
constructed that the government owned the section in Northern
Ontario and financially "backstopped" the section across
prairies. He noted that it was so successful that within 3
years TransCanada owned 100 percent of it. He opined that
financial "backstopping" of long line projects of this nature to
open basins have occurred in Canada 50 years ago.
MR. WRIGHT commented that the Wyoming Pipeline Authority, which
has $1 billion of bonding authority for pipeline projects
originating in its state. He said he cannot recall anything
remotely similar to AGIA.
MR. PALMER thanked the members and offered his willingness to
respond to any further questions during the process of
considering this bill.
2:15:36 PM
CHAIR HUGGINS announced that the Senate Energy Committee
schedule will be forthcoming.
REPRESENTATIVE SAMUELS announced that the House Rules Standing
Committee will meet on Monday, July 21, 2008, followed by a
legislative session at 4:00 p.m. He opined that HB 3001 would
be voted on by the legislature on Tuesday or possibly Wednesday.
CHAIR HUGGINS offered that the committees "sifted through some
very important information."
The committee took an at-ease from 2:18 p.m. to 6:14 p.m.
6:14:11 PM
CHAIR HUGGINS called the meeting back to order at 6:14 p.m. He
described the procedure that would be followed to hear public
testimony.
6:16:39 PM
BILL LEIGHTY, Director, Leighty Foundation, informed the members
that he was a 36 year resident of Juneau and a small business
owner. He said that he has spent seven years co-authoring
research papers on the problem of the transmission of large
scale stranded renewable resources. His first point was that
there are ways to monetize [Alaska North Slope (ANS)] gas other
than delivering methane by a pipeline; the gas could be
converted at the North Slope into either hydrogen or electricity
with the byproduct CO2 used to maintain reservoir pressure. He
pointed out that there is a growing market in Canada for
hydrogen. He explained that 4.0 billion cubic feet per day
(Bcf/d) is about 50,000 megawatts; in fact, the largest
transmission system possible is about 4,000 megawatts.
Therefore, it is possible to build twelve large electric
circuits, thereby delivering a fuel without carbon content.
Secondly, if the pipeline is to be built by TransCanada or
others, composite reinforced line pipe should be used in order
to ensure that hydrogen could also be transported, if desired.
He cautioned that it is difficult to predict what is going to be
imposed upon [governments] to internalize the external cost of
carbon emissions. Sending methane down a pipeline just deflects
the carbon disposal problem onto the customers. Thirdly, he
opined that the legislature needs to consider ANS gas in the
global energy context by implementation of a user friendly
modeling tool instead of looking at "a plan that's been hatched
by other people." Mr. Leighty offered to provide his concepts
by letter to the committees.
6:19:53 PM
JAMES H. WILLIAM related a personal story. He then spoke
against giving the state's mineral resources to a "hostile
nation." He recommended bringing the gas to Valdez, liquefying
it, and putting it on the market to the Lower 48 and Canada. He
pointed out that natural gas can be used in Alaska for value-
added industry, home heating fuel, vehicle fuel, and for
electricity. Mr. Williams listed reasons that the proposal was
"not an extremely good way of thinking." He concluded that the
resources must be used for the benefit of all Alaskans by
building a line to Valdez that would also supply Anchorage. He
opined that the [citizens of] the state are going broke and will
have to leave because they can not afford $6 diesel to heat
their homes. In response to Chair Huggins, Mr. Williams said
that AGIA was "insanity."
6:24:18 PM
HENRY STEVENS informed the members that according to [the
National Geographic Society], there is enough natural gas in
Alaska to support the world for 100 years. The use of natural
gas will also eliminate pollution, he opined. He said that he
has been following Exxon's 20 year attempt to get permission
from Congress to build a pipeline on the basis that there is
only one customer, the United States. Mr. Stevens cautioned
that the United States is in a recession; in fact, next winter
fuel may cost $5 or $6 per gallon. He pointed out that the oil
pipeline cost $8 billion to build in 1975 and would cost $28
billion in today's dollars; thus a 1,700 mile pipeline [will]
cost about $90 billion. He then asked, "Who will own the
pipeline?" He opined that Canada will benefit from the pipeline
and Alaska will be the first state to "outsource" in the United
States.
6:32:16 PM
ALAN KEECH stated that he has been a resident of Tok since 1979.
He encouraged legislators to vote in favor of the TransCanada
pipeline proposal because TransCanada has fulfilled the purpose
and the intent of AGIA. He opined that the state should follow
the intent of AGIA and urged legislators to award the pipeline
contract to TransCanada Corporation.
6:33:44 PM
WILLIAM WARREN said that he was a 55 year resident and a
retired pipe fitter for Local 357. He thanked the legislators
for the open process, and expressed his appreciation for the
"road show" and for Gavel to Gavel [television coverage]. Mr.
Warren referred to his experience in the trade and strongly
urged members to "pass the TransCanada deal ... because of the
honesty and clarity of the process." He said that he does not
trust the oil cartel; the state's interest is protected by AGIA.
He emphasized the need for the state to complete the Y-line
option, even if the big line is never built. Mr. Warren
remarked:
In regards to what we can do now ... we need to go
with in-state gas now and we need that big "D" to
Glennallen route; we need to have it AGIA legal and it
has to be expandable ... which probably means a 24
inch pipeline.
6:37:25 PM
PAUL D. KENDALL pointed out that every situation continues to
evolve and there should be participation at every avenue. He
expressed his support of the passage of AGIA, his faith in the
governor, the AGIA team, and "those legislators who are truly
seeking a better place for us citizens of Alaska." He opined
that the better place is more individual free will. Mr. Kendall
remarked:
I still remain more convinced now than I was before
that this pipeline's probably not going to go. ... The
oil companies are all coordinating as a pack ... they
don't want this line to go, and it may be because it
will upset the economic foundation ... in the Lower
48.
MR. KENDALL stated his pride in the AGIA team and "all of you,
as to where you're going and where you're headed, and I think
where Alaska's headed once we get the AGIA passed and moved on."
He noted his interest in gas being trucked to Fairbanks [by
Exxon], but cautioned against the state investing in a gas line.
He re-stated his support for the AGIA team. Mr. Kendall said
that he also appreciated the testimony by Mr. Leighty, in fact
the entire world is now moving toward water based energy, fuels,
and technology. He read from a document and said, "By 2010,
[the oil and gas and auto industry] can create the national
hydrogen fuel infrastructure needed to support fuel cell
vehicles." He concluded that there is a transition to
electricity based on water; after the gas line the state can
begin to look at its vast resources. Mr. Kendall opined that if
Alaska moves on a large electrical grid line based upon water,
"you are about to see a new awareness of freedoms never
experienced before."
6:44:00 PM
ALFRED MCKINLEY SR., Chairman, Legislative Committee, Alaska
Native Brotherhood (ANB) Grand Camp, expressed his
organization's concern that citizens of Alaska who have a DWI
[driving while impaired conviction] will not be allowed to work
on the pipeline in Canada. He opined that it is wrong to
prevent employment because of one mistake and encouraged the
committee to look into this situation. He then stated his
support of the all Alaska line to Valdez.
6:48:31 PM
MERRITT PIERCE, Member, Board of Directors, Alaska Natural Gas
Port Authority (ANGPA), noted that circumstances have changed
since the conception of AGIA one year ago. Speaking on his own
behalf, Mr. Pierce stated his strong opposition to the
TransCanada proposal and pointed out that 80 percent of Alaskans
support the all Alaska gas line to Valdez. Mr. Pierce reminded
the members of the voter mandates in support of a gas line to
Valdez and opined that to go forward "first we need the voter
support, we need the money, we need the positive economics, and
of course, we have all of these things." He observed that the
proponents of the TransCanada deal do not comprehend what Alaska
can do with the windfall profits from oil to benefit Alaska. He
remarked:
You've got 234 trillion cubic feet of estimated gas
reserves in the North Slope basin. That gas is worth
almost $5 trillion if sold at the premium world
prices; in Japan, where security of supply is more
important than price, gas prices are well over $20 per
MMBtu. If we sell our gas into the North American
market, it makes our gas worth about $2.8 trillion.
... So, to access the $5 trillion monetization of gas,
all we have to do is build a $12 billion pipeline to
Valdez. ... We have a critical, critical, energy
crisis in the Interior of rural Alaska and in Valdez,
and I'm certain that Mayor Whitaker has made very
clear to you what that crisis is doing to the
Fairbanks North Star Borough, as well to our military
bases.
MR. PIERCE continued to explain that Fairbanks can not wait
until 2018 for TransCanada to issue "project sanction" is
absolutely not acceptable. Alternatively, with its newfound
wealth, Alaska can buy certainty by moving forward with an
Alaska owned gas line, with a rate of return of 14 percent on
equity, and bring increased diversification of its income
stream. He summarized that the TransCanada deal does not have a
specified pipeline route or specified Alaska delivery points,
too few Alaska delivery points, "project sanction" that may not
happen until 2018, [unsettled] aboriginal land claims issues in
Canada, loss of value added industry to Canada, and the
possibility of the future sale of the pipeline. Furthermore,
the proposal does not solve the energy crisis, does not provide
certainty that the pipeline will be built, is not consistent
with voters' wishes, fouls the Canadian environment, and will
get the lowest price for the gas and without investment in
Alaska. Mr. Pierce compared the benefits of the all Alaska line
that are: the voter mandate to build; the voter support for a
pipeline to Valdez; early completion of the project; jobs and
value added industry; 18 delivery points; low capital cost of
$12 billion; companies prepared to build the liquefaction plant;
not locked into one market; the highest price for Alaska's gas;
a 14 percent rate of return; low cost gas to Alaska communities;
complies with the Alaska Oil and Gas Conservation Commission
off-take limits; connection with the highway line at Delta
Junction; and early construction and completion.
6:57:13 PM
JOHN SANDOR informed the members that he came to Alaska in 1953
to serve as a regional forester, and also served as the
Commissioner of the Department of Environmental Conservation
(DEC). He stated his support for the special session on energy.
However, he opined that there should be a focus on all aspects
of energy and provisions for the outlying communities, for
example, the hydropower opportunities in Southeast Alaska.
Studies have identified 201 hydroelectric projects that are
possible in Southeast Alaska and further connections to
hydroelectric in British Columbia that were never considered due
to the low price of oil. He opined that it is a serious mistake
to approve AGIA or the all Alaska pipeline without looking at
other opportunities to address the energy needs of the villages.
In summary, Mr. Sandor asked members to look at each region and
find affordable energy for every part of the state. In response
to Chair Huggins, he expressed his preference for the all Alaska
pipeline to Valdez.
CHAIR HUGGINS assured Mr. Sandor that during this special
legislative session, that the legislature will be addressing the
task of additional energy needs within the state.
7:02:14 PM
JERRY MCCUTCHEON characterized the legal uncertainties between
AGIA and TC Alaska as a "legal swamp." He spoke of the $10
billion withdrawn partner exposure that TransCanada transfers to
proposed partners and shippers. In fact, by 2018, the liability
will be greater than the cost of the gas line, he opined. If,
as TransCanada argues, there is no exposure, it should provide
the state with a hold harmless agreement and insurance against
loss. Furthermore, there is additional exposure under the
triple damages clause in AGIA and the prohibition of future
legislature's ability to participate in another mainline gas
line, spur line, or bullet line. Mr. McCutcheon said:
Not one single legislator wants to know how much oil
remains to be produced in Prudhoe Bay ... [and] how
much oil will be at risk by suing the oil companies to
unseal their court records. ... No legislator cares
about how much oil may be sacrificed by the premature
withdrawal of gas from Prudhoe Bay.
MR. MCCUTCHEON related a story that illustrates the value of
oil. He observed that this legislature demands to take the gas
prematurely, to ship the resources out of the state without [the
benefit of] value added industry, and to prohibit future
legislatures from acting in the best interests of Alaska. He
summarized his opinion of the current legislature.
7:06:31 PM
TOM LAKOSH reiterated the need to extract all of the oil
resources necessary. He also agreed with the recommendation to
solicit insurance to cover TC Alaska's liability under prior
contracts. Returning to the issue of enhanced oil recovery, Mr.
Lakosh referred to his research that recommended a combination
of CO2 and 15-30 percent of natural gas liquids injected into
the stratum to force evacuation of the heavy oils. He opined
that this is an opportunity to recover heavy oils from Point
Thomson and whether or not AGIA or Denali proceeds, it is
necessary to get the oil and the gas for a cost effective use of
the pipeline. He remarked:
If Denali follows through they're going to charge us
more for a pipeline because of their equity interest.
And so, you have to make it as cost effective for a
shipment of as much gas as possible in the open
season. You're going to have to write legislation to
... ask for new plans of development to reflect the
price of oil, to provide for enhanced oil recovery
commensurate with the new prices of oil. ... Second,
pass a law requiring carbon sequestration where there
are readily available reservoirs for injection of CO2.
MR. LAKOSH continued to point out the availability of carbon
dioxide (C02) and water from coal beds and coal bed methane
production on the North Slope. The CO2 and water can be
reinjected into oil fields, thus the gas is freed without the
sacrifice of oil in the process. He urged members to
investigate what it would take to develop resources in a
sensible and responsible matter and to protect the state from
liability. In response to Chair Huggins, Mr. Lakosh did not
endorse either project.
7:12:43 PM
CHAIR HUGGINS asked for further testimony. He then briefly
discussed the testimony heard around the state and congratulated
the legislators and support staff for their participation.
7:13:08 PM
The committee took an at-ease from 7:13 p.m. to 7:24 p.m.
7:29:04 PM
GEORGE BROWN Pediatrician, referred to the previous testimony
from the mediator invited by Senator McGuire. Dr. Brown
encouraged everyone to think about Alaska's children and for
their sake, the wise use of money and energy. Dr. Brown noted
that the Alaska's Children's Trust Fund board is working to
prevent child abuse and to help families obtain access to good
medical care and education. Dr. Brown said, "This is where I
hope we will focus as a community, so that the resources ...
will really be used for all the people of Alaska, and especially
its future citizens." In response to Chair Huggins, Dr. Brown
stated that his preference for the pipeline project is that it
be done cooperatively and includes looking at alternative
sources of energy.
7:29:29 PM
[HB 3001 and SB 3001 were held over.]
7:29:39 PM
ADJOURNMENT
There being no further business before the committees, the Joint
Meeting of the House Rules Standing Committee and the Senate
Special Committee on Energy was adjourned at 7:29 p.m.
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