Legislature(2007 - 2008)CAPITOL 120
07/21/2008 02:00 PM House RULES
| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | HB3001 | ||
ALASKA STATE LEGISLATURE
HOUSE RULES STANDING COMMITTEE
July 21, 2008
2:07 p.m.
MEMBERS PRESENT
Representative John Coghill, Chair
Representative John Harris
Representative Anna Fairclough
Representative Craig Johnson
Representative Ralph Samuels
Representative Beth Kerttula
Representative David Guttenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Jay Ramras
Representative Bob Roses
Representative Mark Neuman
Representative Bob Buch
Representative Paul Seaton
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."
- MOVED HB 3001 OUT OF COMMITTEE
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) Heard & Held; Assigned to Subcommittee
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
07/14/08 (H) Heard & Held
07/14/08 (H) MINUTE(RLS)
07/15/08 (H) RLS AT 9:00 AM CAPITOL 120
07/15/08 (H) -- MEETING CANCELED --
07/21/08 (H) RLS AT 2:00 PM CAPITOL 120
WITNESS REGISTER
TONY PALMER, Vice President
Alaska Development
TransCanada Alaska Company, LLC
Alberta, Canada
POSITION STATEMENT: Answered questions during the hearing on HB
3001.
PATRICK GALVIN, Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 3001.
ACTION NARRATIVE
CHAIR JOHN COGHILL called the House Rules Standing Committee
meeting to order at 2:07:04 PM. Representatives Fairclough,
Johnson, Samuels, Kerttula, Guttenberg, Harris, and Coghill were
present at the call to order. Representatives Ramras, Roses,
Neuman, Buch, and Seaton were also in attendance.
HB 3001 - APPROVING AGIA LICENSE
2:07:22 PM
CHAIR COGHILL announced that the only order of business would be
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."
2:07:52 PM
REPRESENTATIVE HARRIS, speaking as chair of the House Rules
Standing Committee subcommittee on AGIA, reviewed the
subcommittee's work on HB 3001. He then submitted the
subcommittee report regarding HB 3001 for the consideration of
the full House Rules Standing Committee.
REPRESENTATIVE SAMUELS offered his appreciation to the
representatives from TransCanada Alaska Company, LLC
("TransCanada"). He expressed his belief that legislators now
understand this issue and the fundamental choices to be made.
He opined that the meetings held across the state have provided
legislators and the public with the opportunity to see debate on
all sides of the issue. He concluded that the process has
educated the legislators tremendously.
2:11:39 PM
REPRESENTATIVE KERTTULA thanked the chair and the administration
for the access to experts and the answers that were provided to
the legislature. She also thanked members of the public for
their participation and support across the state.
CHAIR COGHILL acknowledged that his opinion about meeting across
the state changed from skepticism to appreciation of the
discussions and the community involvement.
2:13:35 PM
CHAIR COGHILL indicated that the proposed amendments would be
considered. He advised that testimony would be limited to
invited participants since public testimony has been taken on
the bill. He noted that the bill is simple. Chair Coghill
introduced the bill that read:
Section 1. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPROVAL OF ISSUANCE OF LICENSE UNDER THE ALASKA
GASLINE INDUCEMENT ACT. The commissioner of revenue
and the commissioner of natural resources are
authorized to issue a license under AS 43.90.010 -
43.90.990 to TransCanada Alaska Company, LLC and
Foothills Pipe Lines Ltd., jointly as licensee.
Sec. 2. This Act takes effect immediately under AS
01.10.070(c).
CHAIR COGHILL said that HB 3001, Version A, was before the
committee and invited a motion.
2:15:58 PM
REPRESENTATIVE JOHNSON [although no formal motion was made]
objected to moving HB 3001 from committee.
REPRESENTATIVE FAIRCLOUGH requested a discussion about whether
amendments could be made to HB 3001. She recalled a press
conference "talking about people trying to derail the process
and the hard work that this body and all legislators have done
during this process." She opined that this discussion before
amendments are taken would raise the comfort level in "our
ability, from a legal perspective, to amend."
2:17:18 PM
REPRESENTATIVE SAMUELS referred to a legal memorandum dated
January 23, 2008, and read the conclusion, as follows:
In conclusion, the legislative consideration of the
issuance of a license under AGIA is limited to the
approval and disapproval of a license. However, the
legislature also has the power to amend AGIA if it
finds existing law does not result in the project that
the legislature finds is in the best interests of the
state.
REPRESENTATIVE SAMUELS stated that "pretty much sums it up."
He opined that philosophically speaking, the legislature is a
separate and equal branch of government, and even if the
administration and TransCanada oppose the proposed amendments,
it is the legislature's duty [to deliberate on legislation]. He
said, "We do not work for the executive branch. Period."
REPRESENTATIVE FAIRCLOUGH clarified for the public that the
memorandum Representative Samuels referred to is dated January
23, 2008; the subject is a work order 25-LS1375 and he is
referring to page 2 of the document in a concluding remark.
2:18:37 PM
CHAIR COGHILL offered his belief that HB 3001 is amendable, but
noted that the significant consequences of doing so should be
considered. He surmised that amending the bill could be a way
of opposing HB 3001, and he and encouraged members who oppose
the license to "just say that straight up." In response to
Representative Kerttula, Chair Coghill noted Mr. Bullock's
presence.
2:19:45 PM
REPRESENTATIVE KERTTULA offered her belief that an amendment
"kills the whole process," and thereby the legislature would be
back to the start of the process. She opined that the
legislature is in a unique position, in that it has a contract
before it, and if "we start to change things, pull that thread,
the contract falls apart, and we're back at square one without
anything in front of us." She offered her point of view that if
the bill is amended on the House floor, the legislators have
"killed the whole deal."
CHAIR COGHILL noted his willingness to entertain all of the
amendments. He explained that if it is necessary to obtain a
legal opinion the possibility exists that the legislature could
have "dueling legal opinions." This was the source of his
reluctance to invite testimony at the outset of the hearing. He
opined that it is the legislature's decision as to whether to
amend the bill; however, he stressed that knowing the
consequence is important due to the fact that "the practical
effect of a significant change in the requirements of this
license is really a 'no' vote."
2:21:07 PM
REPRESENTATIVE FAIRCLOUGH questioned whether changes could be
agreed to by the legislature, the administration, and
TransCanada through a process such that the legislature would
amend AGIA, the governor could sign the AGIA license, and "the
third way, sort of being able to cascade down so that you've
gotten all parties to the table at the end, and TransCanada then
in the form of accepting any portion of the $500 million would
agree to those same terms."
CHAIR COGHILL surmised that a change begins to diminish the
parties' willingness to honor AGIA since [AGIA created] an
expectation both at the application and the awarding stage of
AGIA. He suggested that the committee discuss the policy
debates and if that issue becomes the salient question, "we can
probably get the 'dueling' legal opinions." He stressed that
despite the best legal opinions, the committee will ultimately
make a policy call.
2:22:59 PM
REPRESENTATIVE SAMUELS indicated that one of his amendments
touches on the actions of the state and not of TransCanada. In
addition, one amendment pertains to indemnification of the $16
billion, which is in the best interests of the state, he opined.
He advised that the amendments relate to policy calls and are
not "reaching in and making substantive changes to must haves or
things that were in the [Request for Proposal (RFP)] or things
that were in the TransCanada proposal, other than
indemnification." He pointed out that the state could not
address the issue of indemnification prior to the licensee being
selected.
REPRESENTATIVE KERTTULA disagreed and asked for the amendments
to be offered.
2:24:44 PM
REPRESENTATIVE JOHNSON made a motion to adopt Amendment 1,
labeled 25-GH3055\A.2, Bullock, 7/14/08, that read:
Page 1, line 1, following "Act":
Insert "relating to the extension of inducements
to a natural gas pipeline project that would transport
natural gas from the North Slope to a market in the
state or for export from the state by marine
transportation;"
Page 1, following line 5:
Insert a new bill section to read:
"* Section 1. AS 43.90.440(a) is amended to read:
(a) Except as otherwise provided in this chapter,
the state grants a licensee assurances that the
licensee has exclusive enjoyment of the inducements
provided under this chapter before the commencement of
commercial operations. If, before the commencement of
commercial operations, the state extends to another
person preferential royalty or tax treatment or grant
of state money for the purpose of facilitating the
construction of a competing natural gas pipeline
project in this state other than a natural gas
pipeline project that is wholly within the state and
transports natural gas to a market in the state or for
export from the state by marine transportation, and if
the licensee is in compliance with the requirements of
the license and with the requirements of state and
federal statutes and regulations relevant to the
project, the licensee is entitled to payment from the
state of an amount equal to three times the total
amount of the expenditures incurred and paid by the
licensee that are qualified expenditures for the
purposes of AS 43.90.110 that the licensee incurred in
developing the licensee's project before the date that
the state first extended preferential treatment to
another person. The payment under this subsection is
subject to appropriation. Upon payment by the state
of the amount owed under this section, the licensee
shall, at no additional cost to the state, assign to
the state or the state's designee all engineering
designs, contracts, permits, and other data related to
the project that were acquired by the licensee during
the term of the license. The payment under this
subsection is in full satisfaction of all claims the
licensee may bring in contract, tort, or other law
related to the events that gave rise to the payment."
Page 1, line 6:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill section accordingly.
CHAIR COGHILL objected for the purpose of discussion.
REPRESENTATIVE JOHNSON explained that he continually heard
testimony from around the state and his district emphasizing
that Alaska needs natural gas for Alaskans. He expressed his
uncertainty about whether providing gas for Alaskans is "spelled
out" under the AGIA license; in fact, the treble damages clause
"handcuffs" the state on this point. He acknowledged that
Amendment 1 may be a substantive change; however, the people of
Alaska have vocalized their belief that acquiring natural gas
for Alaskans is the "top issue." Amendment 1 allows any
pipeline project wholly within the state for market in the state
or for export from the state by marine transportation, such as
the "all-Alaska line," the "bullet line," or any number of other
options such as a pipeline from Cook Inlet to the [North Slope],
to exceed [the limit of] 0.5 [billion cubic feet per day
(bcf/d)] and provide natural gas for Alaskans. He urged members
to support Amendment 1 in order to answer the call of Alaskans
throughout the state.
2:26:56 PM
CHAIR COGHILL offered his belief that a natural gas pipeline
from the north to Interior Alaska and along the Railbelt is
"absolutely important." However, he questioned whether
Amendment 1 raises the issue of whether a pipeline that
transports more than 0.5 bcf/d natural gas would be considered a
competing pipeline. He related that AGIA ensures that the state
agrees to license TransCanada by offering protections that the
state will not support a competing project. He offered that he
has been convinced that 0.5 bcf/d will provide enough natural
gas for Alaskans' use in the Interior; however, he expressed
concern whether that amount would be sufficient to provide
enough natural gas to operate the refinery located in his
district. He said that he agrees with the provision in
Amendment 1 to provide gas for in-state use, but expressed
concern over the provision to allow the marine transportation of
gas for export that may be considered competition for the
TransCanada pipeline. Therefore, he stated his objection to
Amendment 1.
REPRESENTATIVE JOHNSON indicated that he might be amenable to an
amendment to Amendment 1 that would delete the reference to
export from the state by marine transportation. He related that
0.5 bcf/d may provide enough natural gas for in-state use, but
the bill reads, "designed to carry", which means that if it
starts at 0.4 bcf/d the state could be subject to treble
damages. He said he believes that Amendment 1 "takes that
completely off the table; this gets gas for Alaskans." He
offered his concern in removing "export" from Amendment 1, but
said he would entertain such an amendment. Representative
Johnson commented that every member of the legislature has a
right to vote on this legislation, and that the committee should
advance this amendment and allow the process to work. He
characterized Amendment 1 "as an opportunity for me and others
to stand up for our constituents and ask for our gas."
2:29:55 PM
CHAIR COGHILL said that he agrees that the entire body should
have an opportunity to consider this language, except that
public testimony has supported the 0.5 bcf/d, and to make a
change would be disingenuous to the applicant. Additionally,
Amendment 1 sets up an erroneous expectation that the state
would not ask for offtake points from the main line. He
cautioned that the amendment causes a range of issues to arise
and he maintained his objection.
CHAIR COGHILL, in response to Representative Harris, agreed to
allow testimony specifically to answer questions from the
members.
REPRESENTATIVE HARRIS related his understanding that Amendment 1
would disallow treble damages in the event that the license is
granted to TransCanada and a project is built within the state
for in-state use of gas and for marine transportation to the
export market.
REPRESENTATIVE JOHNSON agreed that is the intent of Amendment 1.
REPRESENTATIVE HARRIS asked for confirmation from Mr. Palmer.
2:33:18 PM
TONY PALMER, Vice President, Alaska Development, TransCanada
Alaska Company, LLC ("TransCanada"), said that at the initial
open season, TransCanada will provide opportunities to customers
along the route of the pipeline to Alberta or to Valdez, to
nominate gas simultaneously to those locations. Each customer
will have to meet the same terms and conditions to Valdez, Tok,
Fairbanks, or Alberta. He said, "So, yes, they will have the
opportunity if they come forward with the same conditions that
any other customer would have - that we would construct a
pipeline to Valdez or to Alberta or both simultaneously if we
get sufficient gas to both places."
2:34:09 PM
REPRESENTATIVE GUTTENBERG offered his understanding that if a
pipeline of over 0.5 bcf/d was built out of Cook Inlet, the
Nenana Basin, or Glennallen, to provide gas for in-state use, it
would not be considered as competition with the TransCanada
pipeline.
MR. PALMER observed that he did not have the AGIA statutes in
front of him, but recalled that "the competitive nature goes to
gas from the North Slope ... which is north of 68 degrees." He
said, "Clearly gas from the Cook Inlet is south of that 68
degrees; the 500 million a day limit refers to gas coming from
the North Slope, not from gas south of there."
REPRESENTATIVE JOHNSON asked whether it would be more acceptable
to TransCanada if the language - "export from the state by
marine transportation" - were removed from Amendment 1, even if
the in-state use rises above 0.5 bcf/day.
MR. PALMER said he had not reviewed Amendment 1, but remarked:
Clearly, anytime that you are changing to a volume
that is north of 500 million a day you are affecting
the available gas for the pipeline that we hope to
construct, if you give us the license. ... We
evaluated this based on an expectation that in-state
use is less than 500 million a day. ... All the
studies that we have seen would indicate that it is
less today and is expected to be less for many, many
years. In the event that you open it up for exports,
well, you've opened it up to an unlimited volume,
clearly. The world market is very large and that
makes it much more challenging. If you leave it at
in-state gas and you still exceed 500 million per day,
you may also be affecting the value that we think we
achieve by making our application, which is that a
competitive pipeline seeking North Slope gas would not
be pulling away more than 0.5 bcf/day from our
prospective project.
2:36:51 PM
CHAIR COGHILL reiterated his concern about changing the criteria
after having accepted the application and taken public
testimony. He offered his belief that the five offtake points
would serve Alaska, if the TransCanada pipeline is built. Thus,
the license is valuable in that regard, he stated.
REPRESENTATIVE JOHNSON concluded that the time gap would be
considerable between the timing of the five offtake points and
the timing of the bullet line. He stated his belief that people
in Fairbanks or in his own district are inclined to wait the
five to fifteen years that it will take to obtain gas. He
stated that he would still like to advance this proposed change
to the full body, recognizing that it may not pass due to the
arguments just raised.
2:38:07 PM
CHAIR COGHILL opined that 0.5 bcf/day for in-state use is
significant and adequate for all personal home heating and
electrical uses. He stated that with or without Agrium, Inc.,
he is convinced that the refinery in his district "will be
sufficient." He offered his belief that the balance of the
economics of the five offtake points provides a reason to vote
against Amendment 1. However, he stressed that he is not
against in-state gas use.
REPRESENTATIVE JOHNSON stated that he would like all members to
have an option to vote on the language contained in Amendment 1.
2:39:11 PM
REPRESENTATIVE FAIRCLOUGH made a motion to adopt an amendment to
Amendment 1, that read:
Page 1, Lines 3-4,
Delete, "or for export from the state by marine
transportation;"
Page 1, Lines 16-17,
Delete, "or for export from the state by marine
transportation"
2:40:22 PM
REPRESENTATIVE HARRIS objected.
2:40:31 PM
A roll call vote was taken. Representatives Fairclough and
Coghill voted in favor of the amendment to Amendment 1.
Representatives Johnson, Samuels, Kerttula, Guttenberg, and
Harris voted against it. Therefore, the amendment to Amendment
1 failed by a vote of 2-5.
CHAIR COGHILL announced that Amendment 1 was before the
committee. He asked if there was any discussion, and there was
none.
2:41:00 PM
A roll call vote was taken. Representatives Samuels, Harris,
and Johnson voted in favor of Amendment 1. Representatives
Kerttula, Guttenberg, Fairclough, and Coghill voted against it.
Therefore, Amendment 1 failed by a vote of 3-4.
2:41:27 PM
REPRESENTATIVE SAMUELS made a motion to adopt Amendment 2,
labeled, 25-GH3055\A.5, Bullock, 7/21/08, that read:
Page 1, line 3, following "Act;":
Insert "prohibiting the commissioner of natural
resources from issuing a state lease for a right-of-
way for a natural gas pipeline project that has not
been issued a certificate of public convenience and
necessity;"
Page 1, following line 5:
Insert new bill sections to read:
"* Section 1. AS 38.35.015 is amended to read:
Sec. 38.35.015. Powers of the commissioner. The
commissioner has all powers necessary and proper to
implement the policy, purposes, and provisions of this
chapter, so as to subserve, as the exercise of
reasoned discretion determines, the public interest,
convenience, and necessity, including but not limited
to
(1) granting leases of state land for
pipeline right-of-way purposes, except that a lease
for right-of-way purposes for a natural gas pipeline
may not be granted before that pipeline has received a
certificate of public convenience and necessity from
the Regulatory Commission of Alaska or the Federal
Energy Regulatory Commission, as appropriate;
(2) leasing, purchasing, or otherwise
acquiring (including condemning by declaration of
taking) easements or other interests in land in this
state for the purpose of utilizing or granting leases
of the land, easements, or interests for pipeline
right-of-way purposes;
(3) purchasing interests in pipelines in
accordance with options included in right-of-way
leases;
(4) investigating any matters concerning
any lessee with a view to assuring compliance by it
with its right-of-way lease, this chapter, and any
other applicable state or federal law;
(5) developing from time to time and
maintaining a comprehensive master plan for pipeline
transportation development;
(6) developing and promoting programs to
foster efficient, economical, and safe pipeline
transportation services in the state;
(7) coordinating the activities of the
commissioner under this chapter with the
transportation and other relevant activities of other
public agencies and authorities;
(8) constructing, extending, enlarging,
improving, repairing, acquiring, operating, or
engaging in transportation, service, or sale by any
pipeline or providing for these by contract, lease, or
other arrangement on those terms that the commissioner
may consider necessary, convenient, or desirable with
any agency, corporation, or person, including but not
limited to any carrier or any state agency, when the
commissioner determines that a lessee carrier is not
willing to undertake and complete the action within a
reasonable time, and to sell, lease, grant, and
dispose of any property constructed or acquired in the
exercise of this power.
* Sec. 2. AS 38.35.100(a) is amended to read:
(a) The commissioner shall promptly determine,
in a written finding, on an application filed under
AS 38.35.050, whether the applicant is fit, willing,
and able to perform the transportation or other acts
proposed in a manner that will be required by the
present or future public interest. In making a
determination, the commissioner shall consider whether
or not
(1) the proposed use of the right-of-way
will unreasonably conflict with existing uses of the
land involving a superior public interest;
(2) the applicant has the technical and
financial capability to protect state and private
property interests;
(3) the applicant has the technical and
financial capability to take action to the extent
reasonably practical to
(A) prevent any significant adverse
environmental impact, including but not limited to
erosion of the surface of the land and damage to fish
and wildlife and their habitat;
(B) undertake any necessary restoration or
revegetation; and
(C) protect the interests of individuals
living in the general area of the right-of-way who
rely on fish, wildlife, and biotic resources of the
area for subsistence purposes;
(4) the applicant has the financial
capability to pay reasonably foreseeable damages for
which the applicant may become liable on claims
arising from the construction, operation, maintenance,
or termination of the pipeline;
(5) the applicant has agreed that, in the
construction and operation of a pipeline within the
right-of-way, the applicant will comply with, and
require contractors and their subcontractors to comply
with, applicable and valid laws and regulations
regarding the hiring of residents of the state then in
effect or that take effect subsequently; and
(6) if the proposed use of the right-of-way
is for the construction and operation of a natural gas
pipeline, the applicant has received a certificate of
public convenience and necessity for that pipeline
issued by the Regulatory Commission of Alaska or the
Federal Energy Regulatory Commission, as appropriate.
* Sec. 3. AS 38.35.100(b) is amended to read:
(b) If the commissioner makes the determinations
under (a) of this section favorably to the applicant,
then the commissioner may grant the whole or part of
the application. If the commissioner makes the
determinations under (a)(1) - (5) of this section
favorably to the applicant but determines that the
applicant is not then fit, willing, and able to
perform under the application, the commissioner may
grant the application under a conditional lease
subject to conditions established by the commissioner
that will ensure that the applicant will, within a
prescribed period of time not exceeding 10 years,
establish that the applicant is fit, willing, and
able, under (a) of this section, to perform the
transportation or other acts that will be required by
the present or future public interest. An applicant is
not entitled to a notice or authorization to proceed
to construction, or its equivalent, under a
conditional lease until the commissioner determines in
writing that the applicant has satisfactorily
established that the applicant is then fit, willing,
and able to perform under (a) of this section.
Otherwise, the commissioner shall deny the
application. If the commissioner finds under (a)(6) of
this section that a certificate of public convenience
and necessity has not been issued to the applicant,
the commissioner may not grant the application."
Page 1, line 6:
Delete "Section 1"
Insert "Sec. 4"
Page 1, following line 11:
Insert a new bill section to read:
"* Sec. 5. The uncodified law of the State of
Alaska is amended by adding a new section to read:
PROVISIONS NOT SEVERABLE. Notwithstanding
AS 01.10.030, secs. 1 - 4 of this Act are not
severable."
Renumber the following bill section accordingly.
REPRESENTATIVE GUTTENBERG objected to Amendment 2.
REPRESENTATIVE SAMUELS explained that certain places in the
state have right-of-ways (ROWs) called "pinch points" such as
the Yukon River or Antigun Pass. Amendment 2 would prohibit the
commissioner of the Department of Natural Resources from issuing
a ROW without the issuance of a Federal Energy Regulatory
Commission (FERC) or a Regulatory Commission of Alaska (RCA)
certificate. He said, "The point of AGIA at its real crux is to
give TransCanada leverage to move forward with the pipeline so
that you can get all of the 'must haves' and the expansion
possibilities that have been discussed 'ad nauseam' ...." He
opined that providing TransCanada the ROW, in instances where
there can be no competing ROW, gives TransCanada too much
leverage. He related that this specific issue should be set
aside and the process can continue without change to any
provision in the AGIA bill or in TransCanada's application, but
it will preclude the commissioner or the administration from
issuing the ROW. He stated that this would "slow down on the
issuance of right-of-ways until we get further down the road."
2:43:20 PM
CHAIR COGHILL related his understanding that the expectation
under AGIA is that a pipeline coordinator within the Department
of Natural Resources would be appointed to assist TransCanada
during the permitting and right-of-way process. Other
applicants would be allowed to "rent their own workers" during
the ROW process. Since the amendment directs that a ROW could
not be granted unless TransCanada obtained a certificate of
public convenience from FERC, he inquired as to where the FERC
certificate would "fall in the timeline."
REPRESENTATIVE SAMUELS answered that the timing on Amendment 2
may not be the best. He acknowledged that it may delay the
process too long because the pipeline builder may need more
information. However, he noted that the concern is that the
license will be issued and the governor or a subsequent governor
will "pick a winner in the marketplace" at these points where
only one ROW can exist. He characterized that as problematic.
He said the legislature would cede its power over the process
and leverage would be given to a particular party. For example,
he said the governor would "pick a party" for some of the
problems in Antigun Pass. He recalled that he discussed the
concept of the amendment with the consultant, Mr. Porter.
Although time constraints did not allow him to "fine tune" his
concerns, primarily with the two "pinch points," he stressed
that he wanted to be certain the concept was raised as a
concern. He pointed out that if TransCanada has too much
leverage and the governor either provides additional leverage to
TransCanada or to another pipeline builder, the "leverage
picture" changes even though that is not something that the
legislature intended when it passed AGIA.
REPRESENTATIVE SAMUELS said that he would work with Mr. Porter
to improve the language for an amendment that will address his
concern. He characterized the point of Amendment 2 as an
attempt to not have " ...government picking winners and losers
in the marketplace further than we're already doing."
2:46:29 PM
CHAIR COGHILL pointed out, though, by the time the certificate
of public convenience is issued by FERC, a pipeline builder
would have its ROW. He maintained his objection.
REPRESENTATIVE KERTTULA offered her understanding that the
Department of Natural Resources already has a process to deal
with duplicates on ROW leases through statute or in its
regulations. She agreed with the point of the amendment and
that the commissioners should be careful about [this
possibility], although she said she would not support an
amendment.
REPRESENTATIVE HARRIS posed a scenario in which the license is
granted to TransCanada without the amendment and [Denali - The
Alaska Gas Pipeline ("Denali project")] proceeds to a successful
open season. Further, the Denali project does not ask for
fiscal certainty on the slope. He asked whether Amendment 2
says that the commissioner cannot deny the ROW to the Denali
project because of AGIA.
REPRESENTATIVE SAMUELS further explained that his concern is
that, even with dual ROW permits, the administration could pick
one in order to leverage its choice, and that could become
problematic. He opined that the permitting process should not
be used to provide more leverage than is already granted via the
AGIA legislation. He concluded that permits and taxes can be
used to manipulate the process in favor of either way, and the
amendment is an attempt to prevent that by making a procedural
change. He offered to withdraw the amendment, although the
amendment does nothing to affect the economics of the project or
TransCanada's application.
REPRESENTATIVE KERTTULA remarked:
If it doesn't go towards any of the things, and I
believe you that it doesn't, then why would we want to
jeopardize the whole thing? And why don't we sit down
with the commissioner and work this out through the
regulatory process? The pinch point is a good point,
but I - having worked at the joint pipeline office
[and] having written pipeline right-of-ways - ... feel
that there's got to be an obvious answer and it can be
taken care of in a different manner.
REPRESENTATIVE SAMUELS withdrew Amendment 2.
2:51:15 PM
REPRESENTATIVE JOHNSON made a motion to adopt Amendment 3,
labeled, 25-GH3055\A.6, Bullock, 7/21/08, that read:
Page 1, line 3, following "Act;":
Insert "prohibiting the reimbursement of
qualified expenditures before the commissioner of
natural resources finds that certain gas will be
available to the project on or before the commencement
of commercial operations;"
Page 1, following line 11:
Insert new bill sections to read:
"* Sec. 2. The uncodified law of the State of
Alaska is amended by adding a new section to read:
AVAILABILITY OF POINT THOMSON GAS BEFORE
REIMBURSEMENT OF QUALIFIED EXPENDITURES. (a) The
commissioner of revenue and the commissioner of
natural resources may not reimburse the licensee for
qualified expenditures under AS 43.90.110(a)(1) before
the commissioner of natural resources finds that
natural gas produced from the Point Thomson Unit will
be available for transportation by the project on or
before the commencement of commercial operations.
(b) A dispute between the commissioner of
natural resources, the licensee, and the owners and
operators of the Point Thomson Unit over the issue of
whether natural gas from the Point Thomson Unit will
be available for transportation by the project on or
before the commencement of commercial operations shall
be resolved under AS 44.62.330 - 44.62.630
(Administrative Procedure Act) or other form of
alternative dispute resolution agreed to by the
licensee, the owners and operators of the Point
Thomson Unit, and the commissioner of natural
resources, in consultation with the attorney general.
(c) In this section,
(1) "commencement of commercial
operations," "licensee," and "project" have the
meanings given in AS 43.90.900;
(2) "Point Thomson Unit" means the Point
Thomson Unit defined by the Department of Natural
Resources on the effective date of this Act.
* Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
PROVISIONS NOT SEVERABLE. Notwithstanding
AS 01.10.030, secs. 1 and 2 of this Act are not
severable."
Renumber the following bill section accordingly.
CHAIR COGHILL and REPRESENTATIVE GUTTENBERG objected.
REPRESENTATIVE JOHNSON recalled the original understanding that
Point Thomson was critical to getting the gas and having gas for
an open season; Amendment 3 was intended to address that point.
He explained that Amendment 3 would prohibit the reimbursement
of the $500 million until the Point Thomson issue is solved by
any means. Without this amendment, he opined, "I don't think we
get a gas pipeline, regardless of who builds it." Amendment 3
puts pressure on the administration to solve the Point Thomson
issue expeditiously, one way or another, and that is what is
wanted by TransCanada and the state. In fact, that is what is
needed to get to an open season, he said.
2:53:24 PM
REPRESENTATIVE GUTTENBERG referred to the previous comment about
slowing down the project. He opined that Point Thomson is an
example of the state exercising its sovereignty and so he did
not see the need to penalize TransCanada for the state's
actions. He restated that the overriding consideration was
changing the nature of the contract with TransCanada, and doing
so, under the circumstances, was unfair.
REPRESENTATIVE JOHNSON said that it was not the intent of
Amendment 3 to penalize TransCanada. He spoke of being
expeditious. He offered his understanding that "we could have
anywhere from six to eighteen months." He noted that when
reimbursements come about is yet to be determined. He stated,
"I don't believe we get a pipeline that's going to do what the
State of Alaska and the citizens ... [want] ... unless we make
available all the gas that the state has to this project."
Representative Johnson pointed out that he does not care how the
issue is resolved; however, [gas from Point Thomson] has to be
available for this pipeline to be successful.
CHAIR COGHILL agreed that the Point Thomson Unit is central, but
he said he may not agree with how the state addresses that
issue. The legislature has given some authority to the
commissioner; therefore, because the case is in litigation,
"stepping in the middle is awkward."
REPRESENTATIVE KERTTULA cautioned that the legislature does not
want to usurp the court or the commissioner. She opined that
this is an artificial way of resolving the issue, regardless of
how one feels about what has happened at Point Thomson.
2:57:59 PM
REPRESENTATIVE JOHNSON pointed out that Amendment 3 does not
provide direction regarding the solution to the problem. He
restated the purpose of the amendment.
CHAIR COGHILL indicated that Amendment 3 would prohibit
reimbursement and thus "tie the hands of going to an open season
or getting the financial interest determinations or the things
that FERC needs to make that decision." In fact, it pulls the
incentives out of the bill, he added.
CHAIR JOHNSON stressed his belief that Amendment 3 merely
attempts to resolve that issue and would result in a better deal
for the state. While there are drawbacks, if the legislature
is going to advance the project it should not be set up for
failure because the gas was not available.
3:00:27 PM
REPRESENTATIVE FAIRCLOUGH emphasized that she also felt that the
pipeline was dependent on gas from Point Thomson; nevertheless,
she was not comfortable withholding qualified expenses. She
opined that, although the legislature has a right to change
AGIA, this is a substantive change.
3:01:34 PM
A roll call vote was taken. Representatives Johnson and Samuels
voted in favor of Amendment 3. Representatives Kerttula,
Guttenberg, Harris, Fairclough, and Coghill voted against it.
Therefore, Amendment 3 failed by a vote of 2-5.
3:01:57 PM
REPRESENTATIVE SAMUELS made a motion to adopt Amendment 4,
labeled, 25-GH3055\A.7, Bullock, 7/21/08, that read:
Page 1, line 3, following "Act;":
Insert "requiring certain indemnification from
TransCanada Alaska Company, LLC and Foothills Pipe
Lines Ltd., jointly as licensee, before the state
reimburses qualified expenditures;"
Page 1, following line 11:
Insert new bill sections to read:
"* Sec. 2. The uncodified law of the State of
Alaska is amended by adding a new section to read:
INDEMNIFICATION FOR LIABILITIES TO WITHDRAWN
PARTNERS. (a) The commissioner of revenue and the
commissioner of natural resources may not reimburse
the licensee for qualified expenditures under
AS 43.90.110(a)(1) before the licensee indemnifies the
state against any loss of revenue because of a
liability of the licensee to withdrawn partners. The
indemnification is required regardless of whether the
state receives its royalty share of the production of
natural gas in kind or in value. In this subsection,
"licensee" includes the licensee and a successor in
interest to the licensee subject to AS 43.90.
(b) As soon as practicable after the license is
issued, the commissioner of revenue, in consultation
with the commissioner of natural resources and the
attorney general, shall
(1) review the partnership agreement and
other documents associated with the Alaskan Northwest
Natural Gas Transportation Company, commonly referred
to a ANNGTC;
(2) identify the partners and the
successors in interest to the partners in the Alaskan
Northwest Natural Gas Transportation Company;
(3) determine the extent of any liability
or potential liability of the licensee to each partner
or successor to a partner based on any partnership
agreement or other agreement between the partners of
the Alaskan Northwest Natural Gas Transportation
Company;
(4) determine the effect on revenue to the
state should the licensee be found liable to a partner
or successor to a partner under the partnership
agreement and other agreements between the partners
and their successors in the Alaskan Northwest Natural
Gas Transportation Company; the effect on revenue to
the state includes
(A) the costs associated with delays in the
construction of the project;
(B) an effect on the tariff;
(C) an effect on the state's taxes and
royalties;
(D) the effect on a person acquiring an
ownership interest in the project; and
(E) other effects on revenue to the state
identified by the commissioner; and
(5) determine the form and amount of
indemnification required to be provided by the
licensee to the state to shield the state from the
possible effects on revenue determined under (4) of
this subsection.
(c) A dispute between the commissioner of revenue
and the licensee over the extent of any liability of
the licensee determined under this section and the
form and amount of indemnification required by the
licensee shall be resolved under AS 44.62.330 -
44.62.630 (Administrative Procedure Act) or other form
of alternative dispute resolution agreed to by the
licensee and the commissioner of revenue, in
consultation with the attorney general.
(d) The commissioner of revenue shall report to
the legislature the finding of a potential liability
of the licensee to a partner or successor in interest
to a partner of the Alaskan Northwest Natural Gas
Transportation Company, the potential effect on
revenue to the state, and the form and amount of
indemnification required to be provided to the state
by the licensee. The report shall be made before the
10th day of the first special or regular session of
the legislature after the determination by the
commissioner of revenue of the form and amount of
required indemnification.
(e) In this section,
(1) "licensee" and "project" have the
meanings given in AS 43.90.900;
(2) "withdrawn partners" means the partners
and successors in interest to the partners of the
Alaskan Northwest Natural Gas Transportation Company
identified by the commissioner of revenue in (b)(2) of
this section.
* Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
PROVISIONS NOT SEVERABLE. Notwithstanding
AS 01.10.030, secs. 1 and 2 of this Act are not
severable."
Renumber the following bill section accordingly.
CHAIR COGHILL objected to Amendment 4.
REPRESENTATIVE SAMUELS explained that Amendment 4 addresses the
issue of the potential liability of TransCanada's withdrawn
partners. He related that legal counsel for the administration
and the state has advised that the liability cannot be rolled
into the tariff; however, counsel was silent on the question of
whether the liability attaches to a new partnership between
TransCanada and the state. Additionally, testimony from
ExxonMobil Corporation indicated that it would want to buy
ownership in the pipeline equal to its firm transportation (FT)
commitments and TransCanada's proposal indicated its willingness
to sell. Representative Samuels questioned whether, without the
indemnification, if the state becomes a partner and owner, that
liability will [attach]. On the other hand, if the state is
taking gas in value and holds 12.5 percent of gas, he opined
that negotiations on commercial terms would not close in
Alaska's favor. He concluded that Amendment 4 ensures that the
state is indemnified in all circumstances; in fact,
reimbursements from the state to TransCanada cannot start until
after indemnification occurs.
The committee took an at-ease from 3:05 p.m. to 3:09 p.m.
3:09:53 PM
REPRESENTATIVE SAMUELS offered an amendment to Amendment 4,
which read:
Page 2, line 13, following "commissioner":
Insert "of Revenue"
There being no objection, the amendment to Amendment 4 was
adopted.
REPRESENTATIVE HARRIS asked Mr. Palmer to explain the
circumstances surrounding TransCanada's withdrawn partners.
CHAIR COGHILL restated that Amendment 4 [as amended] requires
indemnification to the state against the loss of revenue by
TransCanada's withdrawn partners and prevents payment of
reimbursable expenses until indemnification occurs.
REPRESENTATIVE SAMUELS concurred with that summation.
3:12:14 PM
MR. PALMER explained that this contingent liability came about
to an entity to which TransCanada subsidiaries are a party.
Thirty years ago the Alaskan Northwest Natural Gas
Transportation Company (ANNGTC) put forward the original project
for the Alaska section of an Alaska gas pipeline project. The
ANNGTC was comprised of primarily U.S. pipeline companies and
was joined by TransCanada in 1980. That partnership spent some
$250 million to perform valuable work, including environmental,
engineering, regulatory, and other work, to advance the project.
However, the project did not go forward in the early 1980s and
the original partners have withdrawn, except for two TransCanada
subsidiaries that are the only remaining partners. Mr. Palmer
clarified that those two TransCanada subsidiaries are not the
entities that have filed under AGIA, nor do they have direct
relationships with said entities. He continued to explain that
when the original partnership was struck in 1978, any party that
withdrew lost all rights as a partner because the partnership
agreement did not include any "noncompete" provisions. At the
request of the administration, TransCanada has filed that
partnership agreement and all this information directly with the
state for posting on the state's web site. Mr. Palmer
continued:
Those partners did receive one single right: ... In
the event that the project was to be completed by that
partnership, by ANNGTC, [and] secondly, put into
service by ANNGTC, and thirdly, ANNGTC could pay the
original cost plus interest without undue hardship to
that partnership, then those original withdrawn
partners would have the right to reimbursement.
MR. PALMER then related that last year, the two remaining
TransCanada entities decided they could not viably put forward a
competitive proposal under AGIA. The aforementioned was decided
because, although the [partnership] does hold some assets such
as the original engineering, the original right-of-way,
regulatory assets, and some geotechnical work, those assets are
not equal to the contingent liability. In fact, this summer
TransCanada is taking action to dissolve that partnership. He
noted that the Legislative Budget and Audit Committee wrote a
letter to each of the withdrawing partners notifying them that
TransCanada had made an application with different subsidiaries
under AGIA. Following that action, last fall, TransCanada, made
an application under AGIA through the separate legal entities
of TransCanada Alaska Company, LLC, and Foothills Pipe Lines
Ltd. He indicated that the aforementioned two entities have
nothing to do with the original entities from 30 years ago.
Furthermore, they did not use any of the assets created by the
original entity and will not use any of those assets going
forward. Mr. Palmer said, "TransCanada also made the
commitment, pursuant to its AGIA application, that it would not
seek, ever, to include in its rates, in its tolls and tariffs to
its customers, ... to recover any liability that ever comes home
to TransCanada as a result of those withdrawn partner
liabilities." He opined that these facts illustrate
TransCanada's confidence that those obligations will not come
home to TransCanada.
REPRESENTATIVE JOHNSON surmised then that TransCanada has no
problem indemnifying the state, and therefore would support
Amendment 4.
MR. PALMER clarified:
I did not say that we would provide an indemnity to
the state or to any other party. I said that
TransCanada is confident that this obligation does not
exist, it's a contingent liability to former partners
of an entity that we're in the process of dissolving.
But that's a very different thing than TransCanada
saying to you that we're going to provide you with a
blanket indemnity for anything that could happen,
ever, on this not knowing what roles the state is
going to have. The state has not, to my knowledge,
ever indicated that they intend to be a partner of
TransCanada by ... taking equity. And I've indicated
that as a sovereign royalty collector ... we will not
seek to recover any monies from you or from any other
customer on this pipeline.
3:18:17 PM
REPRESENTATIVE FAIRCLOUGH indicated that she is convinced that a
liability, if any, would be limited; however, she said that she
would vote yes to Amendment 4, as amended, because TransCanada
is in a position to indemnify the state.
3:18:54 PM
REPRESENTATIVE SAMUELS agreed and added that there is a great
deal of money in question and many unknowns ahead. He said, "I
can't imagine why, sitting here today, why we wouldn't say,
'Just indemnify us,' and then the issue is gone for us; that is
between you and your shippers." Regarding the situation of
members who are reluctant to amend the bill, he concluded that
this issue could not have been addressed before now.
3:20:18 PM
REPRESENTATIVE KERTTULA reminded members of the previous
testimony that [the liability] is not going to be rolled into
the tariff, and that is the major problem. In fact, because
this would involve a lawsuit, the process would be public and
very obvious. She said that she felt protected by the fact that
there is no way to miss something like this going into a tariff.
In addition, she expressed her confidence that, at this step,
the state is much protected.
3:21:29 PM
REPRESENTATIVE FAIRCLOUGH disagreed. She pointed out that
TransCanada cannot guarantee the actions of the National Energy
Board (NEB); for example, a former representative of the NEB
suggested that the cost of road maintenance could be rolled into
a tariff. She restated her personal belief that this is a small
issue; however, she cannot dismiss this issue and TransCanada
should ensure that Alaska is held harmless.
3:23:37 PM
MR. PALMER clarified that the contingency has nothing to do with
the Canadian section of the project, thus there would be no
issue for the National Energy Board.
3:24:20 PM
REPRESENTATIVE GUTTENBERG offered his understanding that this
issue could have been addressed prior to today. He remarked:
I'm concerned that if we make TransCanada indemnify
the state, then TransCanada becomes the object. And
if the point is to delay the project, then I think
there's entities out there that would love to put
financial pressure on the company that would cause
delay. And that's something that I think everybody in
this building has talked about: delay being a
problem. So, for that, I'm going to be voting "no" on
this amendment.
REPRESENTATIVE FAIRCLOUGH said:
I take offense to the last remark. I have been trying
to listen very diligently to each amendment and have
voted what I thought was best for Alaska. And I think
that it's best for Alaska, that if it's not an issue,
if TransCanada can, in fact, just dissolve the issue
for Alaska, then that's what should be done. ... I'd
just like, for the record, that I am not trying to
delay anything.
REPRESENTATIVE GUTTENBERG said that his comment had nothing to
do "with the motives of anyone at this table."
3:26:36 PM
CHAIR COGHILL opined that the amendment creates a "litigation
ladder" when talking about withdrawn partners, and it looks like
the wholly owned subsidiary members of TransCanada are under the
control of that same board. Therefore, the indemnification
issue is "almost in counterbalance of that." He said he
understands "protecting Alaska," but said, "It seems to me like
they're really ... two different issues."
REPRESENTATIVE SAMUELS offered his understanding that [Amendment
4, as amended] is simply eliminating the litigation problem -
not for TransCanada and whoever the shippers may be who will
"cut a deal," but for the state, who won't have to worry about
cutting a deal, because it will be "covered with Amendment 4."
REPRESENTATIVE KERTTULA said she has been trying to figure out
how the state could wind up "in the problem." She pointed out,
"It would be a new partner, and the liability won't extend to a
new partner."
CHAIR COGHILL said he thinks the sponsor of the amendment would
say, "If there's no problem, what's the problem?"
REPRESENTATIVE SAMUELS indicated that with $16 million at stake,
lawyers, while not rolling into the tariff, would certainly drag
out the process until a deal is finally cut and they are paid
off. He said it is fine if that is what TransCanada wants to
do, but does not want the state to be included in that deal.
REPRESENTATIVE KERTTULA proffered that no matter how much is at
stake, the principles of law will remain the same. She stated,
"If they tried to put this into the tariff, we would know about
it ..., so that's off the table." In terms of partnership
liability, she said she cannot figure out "how it would happen."
3:30:48 PM
PATRICK GALVIN, Commissioner, Department of Revenue, expressed
his concerns related to how Amendment 4 would play out. His
first concern, he said, is regarding the proposal that he, as
commissioner, would be "asked to identify the potential
liability that the licensee may have to withdrawn partners." He
continued:
In the structure of this amendment, it sort of goes
back and forth between whether the liability is
strictly related to effects on revenue to the state,
or if it goes to just general liability that the
licensing may have that would come out of the
licensee's pocket. I think the purpose of it is to
provide an indemnification that goes to potential
impacts on the state, but it kind of goes back and
forth between those.
COMMISSIONER GALVIN directed attention to subsection (b),
paragraph (4), on page 2, beginning on line 3, which read as
follows:
(4) determine the effect on revenue to the
state should the licensee be found liable to a partner
or successor to a partner under the partnership
agreement and other agreements between the partners
and their successors in the Alaskan Northwest Natural
Gas Transportation Company; the effect on revenue to
the state includes
(A) the costs associated with delays in
the construction of the project;
(B) an effect on the tariff;
(C) an effect on the state's taxes and
royalties;
(D) the effect on a person acquiring
an ownership interest in the project; and
(E) other effects on revenue to the
state identified by the commissioner;
COMMISSIONER GALVIN, regarding subparagraph (A), said he assumes
this has something to do with "time value money and assuming
that there's a discount factor built into that." Regarding
subparagraph (D), he said, "Now that one eludes me in terms of
how that relates to the state revenue, if it's associated with
the relationship between the licensee and some other potential
person acquiring an ownership interest." He continued:
Given that we're going to have to go through this
determination process before we can reimburse the
licensee, it may be a matter that becomes fairly
unclear, in terms of the actual implementation, and
... in everybody's interest - even those who oppose
this - I think we need to have as clear a mandate, in
terms of what is expected of us going in, so that I
don't end up bringing back a report that is called
into question because I didn't do what supposedly
somebody wanted. So, I think, that at a minimum, we
need to clear up what exactly is being requested.
COMMISSIONER GALVIN also recommended clarification in regard to
the ultimate purpose of the indemnification, to ensure that the
state would not be "impacted about expected future revenues if
it's about liabilities that are not necessarily revenue-related,
but liability-related - an expenditure that comes up." He said
the purpose of the report should be made clear.
COMMISSIONER GALVIN continued:
There are going to be expenditures in the next quarter
to half a year that are going to be requested to be
reimbursed, and in the context of coming up with this
report, things such as on page 1, line 15, where it
says, "natural gas in kind or in value", the sponsor
of the amendment referenced if the state were to take
up key commitments, that might change the potential
liability issues. If the state were to take some
(indisc.) equity position at some point, that might
change. We're not going to be at a point in a few
months to make a determination as to whether or not
the state's going to be in either one of those
positions, and so it's going to be very difficult to
make any sort of a report as to what the potential
exposure is, because it's going to be based upon
decisions the state has not made yet, in terms of the
participation in this project. And so, that exposure
is going to be, basically, something the state's going
to have to except at some point in time when the
offer's put before us. If it's limited to simply what
it seems to state at the beginning - effects on
revenue to the state, which would be tied to tariff,
which would be tied to netback value - ... both the
reports that came back to us from our legal
consultants, ... the comments that came in from the
critics of this - particularly the producers - have
all acknowledged that it's not going to show up in the
tariff. And frankly, TransCanada's already
indemnified us for that, because they have stated in
their application they will not seek to have any of
these liabilities put into the tariff. So, if they
do, they will be in breech of the license and have to
indemnify us for any damages to us. So, as it relates
to the tariff, we're already covered; it's already in
the nature of the relationship that we have
established with the licensee. If we're going beyond
that, then we're going to have to have a bit more
guidance, in terms of what we're supposed to be
looking at, because it's going to be basically
speculation about if the state were to choose to take
this role in the future, then we may have this
potential liability based upon the analysis that we
may do, and we're going to need a little bit more
guidance in terms of how far into that speculative
world we're going to have to go, because, frankly,
there's nothing that we're authorized to do, in terms
of taking on that kind of liability at this point in
time. Unilaterally it's going to have to be something
that the legislature would have to participate in.
3:37:19 PM
COMMISSIONER GALVIN, in response to a question from
Representative Fairclough, clarified his understanding is that
TransCanada would not "put any potential payments under this
liability under the tariff." Furthermore, he pointed out that
the FERC analysis has indicated that FERC would not allow that
to happen, even if TransCanada were to seek it.
REPRESENTATIVE FAIRCLOUGH said she heard that TransCanada would
not seek damages, but what [FERC] could not control was a court
award, which she indicated is what is being addressed through
Amendment 4, as amended. Regarding treble damages, she said,
"The state was very able to produce a cumulative state exposure
of $874 million, ... based on TransCanada's proposal." However,
she said she learned that in terms of TransCanada's cost getting
to open season versus other companies with pipeline proposals
not before the legislature, the potential liability on treble
damages "came up to $2 billion." She told Commissioner Galvin,
"I understand that this might be an issue, but there's a big
range that you've worked with before in trying to ascertain risk
and range of risk for Alaska." She asked him to comment.
3:39:17 PM
COMMISSIONER GALVIN, regarding Representative Fairclough's first
point, said the question was not put to FERC. He clarified that
the question was whether or not the state's "FERC experts" had
identified anything within the FERC authority that would allow
"them" to put that liability into the tariff, and it was found
that "that wasn't something that was within the costs that FERC
would transfer into a tariff; it's ... not part of the group of
costs that can be requested to be reimbursed through a tariff
process." He reviewed, "And so, the issue is sort of two-fold:
... TransCanada has said that they won't - which is fine for
what it's worth, but also provides us with the cover that if it
gets in there then we get reimbursed; [and] secondly, FERC
doesn't have the authority to do it."
COMMISSIONER GALVIN with regard to the potential range, stated:
The issue there is we would ... be put in a position
if we said, "What does the state have the authority to
do in terms of our relationship with the licensee, and
what kind of exposure does it provide us?" And this
would be extremely limited if not down to nothing,
because the tariff side is covered. If we were then
to interpret this to say, "Well, imagine every
potential role the state could have up to and
including the state actually buying out TransCanada
and taking over the whole thing," that brings us out
to a whole other world. But that would engender us
speculating on the legislature agreeing to take on a
role that you would presume, as was discussed in the
hearing when the issue actually came up, as
Representative Samuels indicated, it's at the time
that you decide to enter into an equity relationship
that you would deal with a liability or an
indemnification issue. We're not entering into that
kind of relationship through this license. And so, we
don't know what the exposure is at this time, because
... we're not engaged in that level of a negotiation
in terms of having that kind of relationship.
3:41:52 PM
REPRESENTATIVE FAIRCLOUGH asked whether the administration
believes that the exposure is small.
COMMISSIONER GALVIN responded that the administration believes
that the exposure, given the current relationship that would be
established under AGIA, is small. However, he clarified his
point is that the report that he would be asked to provide does
not provide him enough guidance to know what answer he is
supposed to provide.
REPRESENTATIVE FAIRCLOUGH said she has heard the administration
say that voting yes on this project will not derail competition,
and that voting yes on AGIA will hold the producer's or
potential shipper's "feet to the fire" to commit their gas. She
asked Commissioner Galvin to confirm if that is a true
statement.
COMMISSIONER GALVIN said [voting yes on AGIA] "puts the question
of duty to develop on a track to be resolved," but he would not
say it "puts their feet in the fire to commit their gas to the
TransCanada project."
REPRESENTATIVE FAIRCLOUGH opined that a yes vote for Amendment
4, as amended, would be telling TransCanada that it must
perform, and she said she believes the cost numbers are
approximately $200 million, at a 14 percent accumulative rate
every year, which would result in a figure in the billions of
dollars as Representative Samuels had indicated. She said she
would hope TransCanada "would have it done this summer," and
that Commissioner Galvin would never have to prepare a report,
because "they would submit that those subsidiaries have
relinquished their claims."
3:44:08 PM
COMMISSIONER GALVIN responded:
My stated concern is that although it is seen as a
non-issue, by conditioning reimbursement on us putting
together this report that is not very well defined, it
actually makes an issue of it, in terms of being able
to advance the project, and that you're actually
creating, for the purposes of clarifying this issue,
an area that has a lack of clarity that ends up
dragging the process down.
3:45:02 PM
REPRESENTATIVE HARRIS asked how Commissioner Galvin proposes the
state could be indemnified - to protect itself from the issues
brought forward.
COMMISSIONER GALVIN offered his belief that in regard to the
withdrawn partner liability being in the tariff, the state would
be protected under the AGIA license. In regard to potential
liability that may come to the state should it decide to change
its relationship with TransCanada, Commissioner Galvin said the
state would have the ability at that time to "engage in the
necessary discussions about indemnification based upon a
knowledge of the relationship that we're trying to establish,
and the risk of exposure that that relationship would create."
The state's future relationships may be so diverse that the need
for and the type of indemnification is not a matter that can be
pinned down; however, the state will have every opportunity to
protect itself before entering into any of those relationships.
Thus, he said he does not view Amendment 4, as amended, as
necessary.
REPRESENTATIVE SAMUELS stated, "Doing it later's not good
enough; I want to do it now."
3:48:00 PM
A roll call vote was taken. Representatives Fairclough,
Johnson, and Samuels voted in favor of Amendment 4, as amended.
Representatives Guttenberg, Harris, Kerttula, and Coghill voted
against it. Therefore, Amendment 4, as amended, failed by a
vote of 3-4.
3:48:42 PM
CHAIR COGHILL, in response to Representative Fairclough, asked
Commissioner Galvin to let the committee know where in the AGIA
license and the application process the language is that he
thinks protects the state.
3:49:44 PM
REPRESENTATIVE Harris moved to report HB 3001 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 3001 was reported from the
House Rules Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Rules Standing Committee meeting was adjourned at 3:50 p.m.
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