Legislature(2007 - 2008)
07/30/2008 03:28 PM Senate ENR
| Audio | Topic |
|---|---|
| Start | |
| SB3001|| HB3001 | |
| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON ENERGY
July 30, 2008
3:28:44 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Kim Elton
Senator Lyda Green
Senator Lesil McGuire
Senator Donald Olson
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
Senator Fred Dyson
Senator Thomas Wagoner
Senator Lyman Hoffman
MEMBERS ABSENT
All members were present
OTHER LEGISLATORS PRESENT
Senator Gene Therriault
COMMITTEE CALENDAR
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
HOUSE BILL NO. 3001(efd fld)
"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."
MOVED HB 3001(efd fld) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (S) READ THE FIRST TIME - REFERRALS
06/03/08 (S) ENR
06/03/08 (S) REPORT ON FINDINGS AND DETERMINATION
06/04/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/04/08 (S) Heard & Held
06/04/08 (S) MINUTE(ENR)
06/05/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
06/05/08 (S) Heard & Held
06/05/08 (S) MINUTE(ENR)
06/06/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/06/08 (S) Heard & Held
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
07/14/08 (S) Heard & Held
07/14/08 (S) MINUTE(ENR)
07/22/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/22/08 (S) Heard & Held
07/22/08 (S) MINUTE(ENR)
07/23/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/23/08 (S) Heard & Held
07/23/08 (S) MINUTE(ENR)
07/24/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
07/24/08 (S) -- MEETING CANCELED --
07/25/08 (S) ENR AT 1:30 PM SENATE FINANCE 532
07/25/08 (S) Heard & Held
07/25/08 (S) MINUTE(ENR)
07/28/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
07/28/08 (S) Heard & Held
07/28/08 (S) MINUTE(ENR)
07/29/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/29/08 (S) Heard & Held
07/29/08 (S) MINUTE(ENR)
07/30/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
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
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 RPT 3DP 4DNP
07/21/08 (H) DP: KERTTULA, GUTTENBERG, COGHILL
07/21/08 (H) DNP: JOHNSON, FAIRCLOUGH, SAMUELS, HARRIS
07/21/08 (H) RLS AT 2:00 PM CAPITOL 120
07/21/08 (H) Moved Out of Committee
07/21/08 (H) MINUTE(RLS)
07/22/08 (H) BEFORE THE HOUSE IN THIRD READING
07/22/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/22/08 (S) <Pending Referral>
07/23/08 (H) TRANSMITTED TO (S)
07/23/08 (H) VERSION: HB 3001(EFD FLD)
07/23/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/23/08 (S) <Pending Referral>
07/24/08 (S) READ THE FIRST TIME - REFERRALS
07/24/08 (S) ENR
07/24/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
07/24/08 (S) -- MEETING CANCELED --
07/25/08 (S) ENR AT 1:30 PM SENATE FINANCE 532
07/25/08 (S) Heard & Held
07/25/08 (S) MINUTE(ENR)
07/28/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
07/28/08 (S) -- Testimony <Invitation Only> --
07/29/08 (S) ENR AT 1:00 PM SENATE FINANCE 532
07/29/08 (S) Heard & Held
07/29/08 (S) MINUTE(ENR)
07/30/08 (S) ENR AT 2:00 PM SENATE FINANCE 532
WITNESS REGISTER
STEVE PORTER, Legislative Consultant
Legislative Budget and Audit
Juneau, AK
POSITION STATEMENT: Discussed withdrawn partner liability in
AGIA.
BONNIE HARRIS, Senior Assistant Attorney General
Department of Law
Juneau, AK
POSITION STATEMENT: Provided legal opinions on withdrawn partner
liability and treble damages in AGIA as they relate to HB 3001.
DONALD BULLOCK, Attorney
Legislative Legal and Research Services Division
Legislative Affairs Agency
Juneau, AK
POSITION STATEMENT: Answered questions about the interpretation
of AGIA (HB 177) as it relates to HB 3001.
MARTY RUTHERFORD, Deputy Commissioner
Department of Natural Resources (DNR )
Anchorage, AK
POSITION STATEMENT: Answered questions about the treble damages
clause in AGIA.
PAT GALVIN, Commissioner
Department of Revenue
Anchorage, AK
POSITION STATEMENT: Answered questions about the inducements in
AGIA as they relate to HB 3001.
TONY PALMER, Vice President
TransCanada Alaska Development
Calgary, Alberta, Canada,
POSITION STATEMENT: Answered questions about project timelines
under HB 3001.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Special Committee on
Energy meeting to order at 3:28:44 PM. Present at the call to
order were Senators Wagoner, Wielechowski, McGuire, Hoffman,
Stevens, Stedman, Huggins, Green, Elton, Thomas, Olson and
Dyson.
SB3001-APPROVING AGIA LICENSE
HB3001-APPROVING AGIA LICENSE
3:28:44 PM
CHAIR HUGGINS apologized for the delay and advised the committee
that the meeting would continue with discussion of the issues
being considered yesterday, followed by disposition of the bill.
He recalled that Senator Wagoner introduced a letter from
Legislative Budget and Audit (LB&A) yesterday and asked what
other letters, if any, had been received. Copies of the letters
from withdrawn partners were provided to the members. He advised
that the LB&A letters do not specifically indemnify the state
and asked Mr. Porter to address those letters.
STEVE PORTER, Legislative Consultant, Legislative Budget and
Audit said he would walk through the letters in the order they
appear in the members' packets. The first letter was received
from Pacific Gas & Electric (PG&E). He noted that the second
full paragraph said PG&E does not believe they have any rights
to waive with respect to TransCanada Corporation's application;
but they do not waive any future rights.
The second one was from SEMPRA Energy dated April 1, 2008. In it
they answered two questions: First, they said "to the extent
that PITCO has certain continuing rights under the AANGTC
agreements, PITCO is not willing to waive any rights as a
withdrawn partner." Second, they said they were not aware that
TransCanada was violating any obligations under the AANGTC
General Partnership Agreement. In other words, TransCanada
didn't violate anything in that agreement but if, at some future
date, SEMPRA believes the withdrawn partners have rights, they
have not waived them.
The Third letter was from David Sokol with Mid-American, who
said they do not have an ownership interest as a withdrawn
partner; so the state would have to track down whoever owns
their interest.
Fourth, Williams was actually polite enough to send LB&A a
letter on April 11, 2008 saying they were working on it. On June
2, 2008 they sent another letter, which said they were not
willing to waive their rights under the AANGTC partnership
agreement without being adequately compensated; but they didn't
have enough information to know if they had any rights to
negotiate.
Three parties were still outstanding.
CHAIR HUGGINS asked if anyone held us harmless.
MR. PORTER answered no, but said that is understandable. No
lawyer would let its client waive potential rights.
CHAIR HUGGINS asked for questions.
3:34:38 PM
SENATOR WAGONER wanted to hear from Bonnie Harris on these
letters.
BONNIE HARRIS, Senior Assistant Attorney General, Department of
Law, Juneau, AK, said she hadn't had the opportunity to read the
letters but agreed with Mr. Porter that an Attorney would be
unlikely to advise his clients to waive a liability even if they
weren't sure they had one. Personally, she was reluctant to try
to interpret the intent of the letter outside what was stated.
CHAIR HUGGINS commented that these just increase his anxiety
over the issue of withdrawn partners and that they should try to
close any loopholes.
3:36:37 PM
CHAIR HUGGINS asked Ms. Harris if she would read these letters
and comment later. She said she would do so.
3:37:00 PM
Chair Huggins called a brief at ease.
Chair Huggins called the meeting back to order at 3:37:59 PM.
He reminded members that they were talking about the fiscal
packages when they adjourned yesterday. He asked Mr. Bullock to
come forward to address production taxes and treble damages.
3:38:44 PM
SENATOR WAGONER asked if Mr. Bullock would address the
ramifications of an amendment on indemnification at this late
date.
SENATOR MCGUIRE said she intended to offer an amendment on
indemnification as a requirement for issuance of the license
rather than as an amendment to AGIA.
3:39:50 PM
DONALD BULLOCK, Attorney, Legislative Legal and Research
Services Division, Legislative Affairs Agency, Juneau, AK said
he was involved in drafting and reviewing AGIA. He asked what
the committee specifically wanted him to address.
CHAIR HUGGINS explained that they want to know, given a fiscal
regime, what would trigger treble damages in scenarios that
affect TransCanada and other parties.
3:40:39 PM
MR. BULLOCK said it was best to start with the treble damages
statute AS 43.90.440 and quoted from that statute:
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, 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 ....
So first of all, he said, it would have to be for the purpose of
encouraging a competing natural gas pipeline project. That means
a project designed to accommodate throughput of more than 500
Mcf/day of North Slope gas to market. A proposed tax regime
aimed at a particular competing project would raise the issue of
whether it would carry gas from the North Slope to market and
whether it was given for the purpose of favoring a competing
project. If both of those were true, it would fall under the
treble damages clause.
He said there was discussion during the passage of ACES
(Alaska's Clear and Equitable Share, Petroleum Production Tax
amendments of 2007) about the relative value of gas versus oil.
The general rule is 6 Mcf of gas is equivalent to a barrel of
oil and it is taxed on a barrel-equivalent basis. If there was
ever an adjustment to the tax rate for gas that applied
generally, it wouldn't really favor any competing pipeline. For
example, if the legislature amended the tax on the production of
natural gas across the board, he did not believe it could be
interpreted to favor a competing gas line because one of the
elements [to trigger the treble damages clause] is that it has
to be given for the purpose of facilitating the competition.
3:44:38 PM
CHAIR HUGGINS asked Mr. Bullock to turn that around and tell him
what the parameters are for doing unique fiscal regime items for
TransCanada.
DON BULLOCK answered that if they changed the requirements with
regard to TransCanada, that would affect other potential
applicants who would have benefited as well and raise the
possibility of litigation as to whether the state followed
reasonable principles of public contracting.
3:46:21 PM
CHAIR HUGGINS asked if appointing a pipeline coordinator for
another project would trigger the damages.
DON BULLOCK responded that by issuing the license, the state is
saying that this is their favorite project and the inducements
provide a coordinator for it. The position is established in AS
43.90.250 and AS 43.90.260 talks about the expedited review and
action by state agencies. He referred to the words of the
statute, saying it is to "expedite consideration." So if there
were 2 projects going at the same time, the licensed project
would be expedited by this coordinator. If a coordinator was
provided for another project and that coordinator moved things
along faster than the coordinator dedicated to the licensee, it
could be a violation of the treble damages clause.
3:48:41 PM
CHAIR HUGGINS asked Bonnie Harris to comment on the issue of
pipeline coordinators.
BONNIE HARRIS said her legal take on it is consistent with Mr.
Bullock's in that the pipeline coordinator is an inducement for
the AGIA licensee; so if the state gave preferential treatment
in some way to another pipeline, that could raise the treble
damages issue. However, the permitting question is addressed in
AGIA section 43.90.440 (b), which says:
The review, processing, or facilitation of a permit,
right-of-way, or authorization by a state agency in
connection with a competing natural gas pipeline
project does not create an obligation on the part of
the state under this section.
So the Act exempts the routine permitting, processing and
facilitation of permits and rights-of-way from susceptibility to
treble damages. She thought it would be an unlikely scenario
that would raise the treble damages clause, although
hypothetically one might be able to think of something that
would.
CHAIR HUGGINS asked Mr. Bullock if he had anything to add to
that.
3:51:25 PM
DON BULLOCK said if there were two competing pipelines, the
licensee would have the coordinator shepherding him through the
process while the competing project would not. If there were two
competing coordinators trying to expedite their pipelines and
the competing project was over 500 mcf of North Slope gas, it
would raise the issue.
3:52:23 PM
SENATOR ELTON said it was his understanding that in most major
projects, the project sponsor has the right to pay the state to
assign a person to work on their permits. It was also his
understanding that if a competing project did pay for their own
expediter, it would not trip the treble damages. He asked if his
understanding was correct.
MR. BULLOCK said that question would be better directed to the
Department of Natural Resources, which gets directly involved in
that. He referred Senator Elton to AS 43.90.260 for the specific
things the coordinator gets involved in.
CHAIR HUGGINS asked Mr. Bullock if he would read that for them.
MR. BULLOCK read:
(a) A review conducted and action taken by a state
agency relating to the project shall be expedited in a
manner consistent with the completion of the necessary
approvals in accordance with this chapter. (b)
Notwithstanding any contrary provision of law, a state
agency may not include in any project certificate,
right-of-way, permit, or other authorization issued to
the licensee a term or condition that is not required
by law if the coordinator determines that the term or
condition would prevent or impair in any significant
respect the expeditious construction and operation or
expansion of the project.
(c) Unless required by law, a state agency may not
add to, amend, or abrogate any certificate, right-of-
way, permit, or other authorization issued to a
licensee if the coordinator determines that the action
would prevent or impair in any significant respect the
expeditious construction, operation, or expansion of
the project.
What this refers to, he said, is the actual requirements for the
license. To the extent that these go to the standards
themselves, it really doesn't matter if somebody else is
reviewing it or not. It's just that, for this project, the
coordinator is going to be following what the requirements are
for each permit and each right-of-way and each authorization the
department will issue to make sure that nothing is being done to
slow the process for the licensee's project.
3:55:11 PM
SENATOR ELTON reserved follow-up until the department was at the
table. He wanted to be sure his understanding was clear.
3:56:12 PM
MARTY RUTHERFORD, Deputy Commissioner, Department of Natural
Resources (DNR), Anchorage, AK, said Senator Elton was correct.
They testified to that effect a year ago when they were working
on AGIA. The Department has the right to facilitate any large
project. They also have the large project review process whereby
an applicant can pay for an expedited review of their permit and
coordination activities and this would in no way conflict with
those prerogatives. That was part of the record when they passed
AGIA.
3:57:12 PM
SENATOR GREENE wanted to confirm that nothing would impede a
competing project.
CHAIR HUGGINS recalled hearing from Commissioner Galvin that the
pipeline company could pay for a coordinator. He asked if one
would be expedited over the other.
DEPUTY COMMISSIONER RUTHERFORD assured him that nothing would
conflict with DNR's ability to provide that kind of assistance
to an alternative project. She believed this section was added
to clarify the issue that having another coordinator or review
process would in no way conflict with AGIA and therefore would
not trigger treble damages.
3:58:44 PM
BONNIE HARRIS clarified that section 43.90.440 does not apply
the treble damages to the permitting, coordinating function. It
says that "if the state extends to another person preferential
royalty or tax treatment or grant of state money..." So from
that and the exception in (b) which says it does not apply to
the processing, facilitation of rights-of-way or permits, she
felt she could argue strongly that it does not apply at all to a
coordinator position.
3:59:47 PM
PAT GALVIN, Commissioner, Department of Revenue, Anchorage, AK
said the question seems to be whether there are potential
limitations to what additional inducements could be provided to
TransCanada specifically or exclusively; and the answer is that
it depends upon what is proposed. As Mr. Bullock said, the
question of preferential versus non-preferential drives the
treble damages issue. Any proposals that comes forward will be
brought before the legislature and all issues associated with
potential limitations will be fully debated in the context of
the specifics that proposal. He could not make any general
statement about what is or is not allowable.
CHAIR HUGGINS asked if there was a menu of things that might be
allowable.
4:02:04 PM
COMMISSIONER GALVIN thought they could look at the history of
this discussion and get a sense of the full suite of things the
shippers might want to discuss, such as fiscal predictability,
production taxes on gas, royalties and all of the things that
were part of the stranded gas discussions. From the
administration's perspective, when they came forward with AGIA,
they felt the inducements provided addressed the only potential
legitimate barriers to getting shipping commitments and they did
not see that any additional modifications to the state's fiscal
system were needed in order to provide an attractive climate for
gas being shipped in a line within the state. He cautioned that
as they go forward and have discussions with shippers, they may
find some things that need to be changed. What those might be
and whether they will apply to all projects or to any particular
one will be based on the factors Mr. Bullock identified and that
they have talked about in terms of the limitations within AGIA
and those associated with having gone through a competitive
process to get here.
AGIA provides certainty with regard to the length of time on the
production tax rate. He said that has been discussed during
these license hearings in terms of whether 10 years will be
sufficient and it might come up again; but whether the
administration would support a change along those lines, would
be based upon a determination that it is a reasonable and
appropriate request.
4:05:05 PM
SENATOR STEDMAN asked for a brief at ease.
CHAIR HUGGINS called the meeting back to order at 4:05:46 PM.
He asked Commissioner Galvin about the $3.5 million requested to
support inducement efforts over the next 10 months.
COMMISSIONER GALVIN said they expect to spend that money
primarily in response to proposals that come to them from the
shippers; they do not intend to generate any proposals
themselves. In order to address those timely, they need to have
access to the funds as needed.
4:07:30 PM
CHAIR HUGGINS asked him to characterize how he sees the meetings
and the process for spending that $3.5 million unfolding.
4:08:01 PM
COMMISSIONER GALVIN said they don't see TransCanada as their
agent whatsoever as it relates to the fiscal system. When it
comes to discussions regarding changes in the fiscal system,
those would be between the state and potential shippers. The
administration believes there is an expectation on the part of
the shippers that there will be changes to the state's fiscal
system in order to accommodate their commitments to ship gas,
and that it will lead to further discussions. They want to be in
a position to be nimble, responsive and timely.
4:09:41 PM
CHAIR HUGGINS wondered whether or not the legislature would be
involved in those discussions.
4:09:53 PM
COMMISSIONER GALVIN answered that they would expect members of
the administration to be involved primarily; however, it would
be beneficial in the long run to include the legislature in the
process.
4:10:47 PM
SENATOR GREEN asked him at what stage the legislature would be
involved.
COMMISSIONER GALVIN speculated that it would be as the
discussions evolve fairly early on and throughout. In response
to an earlier question, he answered that they would be
responding primarily to requests for certain changes in the
system. The nature of those discussions will be defined as they
move forward; so the interaction of the legislature will have to
be decided throughout the process.
4:12:32 PM
SENATOR GREEN challenged, with all due respect, what guarantees
exist in AGIA to ensure that would be the case if Commissioner
Galvin moved on to another job in 5 or 6 years.
COMMISSIONER GALVIN answered that nothing in AGIA guarantees it,
just as nothing in state law guarantees the administration will
involve the legislature in the development of legislative
proposals; but in the end, the legislature would have to agree
to anything that would be offered by the state in terms of
changes to the fiscal system. That is the absolute guarantee
that the legislature will be involved. It then becomes a
question of the work process and how much legislative
involvement will increase the opportunity for success.
4:13:41 PM
SENATOR GREEN opined that he would probably not object to a
letter of intent to that effect.
COMMISSIONER GALVIN hedged that it depends on what is in it.
SENATOR GREEN suggested that he start writing it then.
4:14:09 PM
MR. BULLOCK pointed out that the administration's ability to
provide inducements to get the producers to commit to the
licensed project is limited by their powers within the statute.
If they need a tax exemption or a change in the tax rate, they
can not do that without the approval of the legislature.
Similarly, if they want changes in the royalty contracts to the
lease agreements, they would have to be within the bounds of the
law that empowers them to negotiate certain provisions in those;
they could not do it unilaterally.
CHAIR HUGGINS said it is good news that [the legislature] will
be involved in the fiscal regime going forward.
4:15:45 PM
MR. PORTER responded to Senator Huggins' question regarding what
general principals they might apply to AGIA to help them know
what they can and can't do by offering a general principal of
contract law and relating it to the AGIA process.
He said that the bidders all bid on a certain scope of project;
once the bids are in, the proposal cannot be changed as that
would allow for collusion and corruption. A tax is a law of
general application; it is not specifically laid out in the AGIA
process. AGIA provides certainty, but the amount isn't
specified, so they can change a law of general application on a
tax without violating AGIA. Interestingly, fiscal certainty is
very specific in AGIA for 10 years; so they can't change that
without violating the principals of contract law. So it really
depends upon what they want to change. If it is a specific
element in AGIA, they can't change it. Once they award the
license, they have to "float all ships equally". He asked if Mr.
Bullock had anything to add.
4:19:05 PM
MR. BULLOCK agreed with Mr. Porter's explanation.
4:19:12 PM
CHAIR HUGGINS said it did raise a question in his mind about all
of the people who thought about applying and didn't. Let's say,
he conjectured, that they changed [the fiscal certainty] from 10
to 15 years at some point. At what point would those other
parties no longer be able to come back and say that if the state
had done (whatever) during the AGIA application process, they
would have applied?
4:19:38 PM
COMMISSIONER GALVIN said that is a legal issue that would be
based on a number of factors and deferred the question to Ms.
Harris.
4:14:50 PM
MR. PORTER said that if they decided to change the fiscal
certainty term, it would be because they believe it is
substantive and that would mean floating one boat higher than
another. There is a window of time however, when all of those
fiscal incentives actually go away. For instance, if TransCanada
failed its first open season, they have to propose a second open
season without any of the fiscal incentives in the current bill;
and in that environment, he said, they could actually propose a
law and provide fiscal certainty for a term on both
TransCanada's proposal and a non-licensee proposal going
forward.
4:21:19 PM
MS. HARRIS said she agreed with some of Mr. Porter's application
of contract law to the AGIA license, but wouldn't apply the
principals of contract law to constrain the legislature's
ability to make and change laws. If the legislature made changes
to AGIA, they would be changing the terms. That might also be
true if they put certain conditions on a license that would
retroactively affect the AGIA process. She did not believe, from
a legal analysis perspective, that AGIA precluded the
legislature from using their authority to make tax laws, royalty
laws or other general application laws.
4:23:11 PM
CHAIR HUGGINS presumed that, if they can make those changes
after passing the license, they can do it before. This isn't an
up or down vote so from a legal standpoint, they can amend AGIA.
He asked if that is correct.
4:23:35 PM
MS. HARRIS responded that she didn't understand the question.
CHAIR HUGGINS repeated that he thought she had said AGIA does
not bind the legislature from taking action, that the state can
change the fiscal terms and other things; and he assumed that
was true either before or after issuing the license.
MS. HARRIS said she was referring to laws outside of AGIA. She
was referring to the legislature's broad authority to make tax
law and was not suggesting that the legislature, with the
license before it, could go back and change the fiscal terms.
She pointed out that "fiscal certainty" or "fiscal terms" are
rather broad expressions; but as she understood they were used
in this context, they meant giving gas producers some kind of
tax stability that gives them certainty. She believed it was
possible to do that without triggering the treble damages but
was not suggesting the legislature would go back and
retroactively amend AGIA.
4:25:02 PM
MR. PORTER said he agreed in principle with what he thought Ms.
Harris had said; they can change the tax; what they might have a
disagreement on is changing the fiscal terms of 10 years. He
asked if Ms. Harris was saying they can do that without
violating the principals of AGIA or contract law.
4:25:26 PM
MS. HARRIS said she believes that if they changed the fiscal
terms of AGIA they would be amending AGIA and would risk turning
the process that is before the legislature back at least a year.
MR. PORTER said they are in agreement.
4:25:48 PM
MR. BULLOCK stated that, in addition to inducements offered to
the licensee within AGIA, there are inducements to the producers
who will be making gas available for the pipeline. When AGIA was
enacted, it said the taxes would be subject to certain
exemptions for a certain period of time and this is something he
expected the applicants would have looked at. It goes right to
the feasibility of the project and whether the producers have an
incentive under AGIA to commit their gas under it. He explained
that there were really two things going on. With regard to AGIA,
the question is if this actually is a solid incentive that
TransCanada and other applicants can look at to ensure gas is
going to be available. But this is only one part of general tax
policy because, when the legislature enacts tax law, although
they generally do make it a general application, they do have
targeted tax credits for certain favored investments. So the
gray area is if the legislature amends the special conditions
that were enacted as part of AGIA that relate to making a
commitment during the first binding open season.
4:27:39 PM
SENATOR WIELECHOWSKI commented that they just have to read the
language in AS 43.90.440, which says: "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 gasline project in this state..." then
they're subject to damages. If the state doesn't do it to
facilitate the construction of a competing project, they don't
owe anything. In his mind it was as clear as day that if the
state (meaning the state?) wants to provide fiscal certainty,
fiscal stability, as long as they do it on a level playing field
they do not breach the contract.
4:28:38 PM
MS. HARRIS agreed and felt the court would too. She thought it
was unlikely the state would inadvertently trigger the treble
damages. If it chose to make a business decision at some point
that would result in treble damages, the state has assurances of
the limitation of its liability through this provision.
4:29:57 PM
SENATOR DYSON said he is willing to stay all night if necessary
to honor their commitment to get this out of committee.
4:30:40 PM
CHAIR HUGGINS said they are all committed that and will do
whatever is required to move the process forward. He announced a
short break.
CHAIR HUGGINS called the meeting back to order at 4:53:15 PM.
MR. BULLOCK pointed out that within 440 the first sentence
refers to enjoyment of inducements provided under this chapter,
which brings in the coordinator position; so there is some
ambiguity.
4:54:31 PM
CHAIR HUGGINS revisited the 10 month negotiation period that
Commissioner Galvin alluded to and the involvement of the
legislature in that. He said he assumed some of the negotiations
would have to go on behind closed doors and asked if that was
correct. He also asked if Commissioner Galvin would like to add
anything to his previous testimony.
4:55:22 PM
COMMISSIONER GALVIN answered no, he had nothing to add. With
regard to the issue of confidentiality, the administration had
no way of knowing what would transpire or in what forum; the
process would not be unilateral but would be based upon
agreements between parties going forward.
4:56:24 PM
CHAIR HUGGINS asked if he was saying that confidentiality may
have a bearing on the process.
4:56:37 PM
COMMISSIONER GALVIN replied yes.
4:56:59 PM
CHAIR HUGGINS questioned how, assuming a license is granted, he
foresees the administration updating the legislature timely
about progress toward a pipeline under AGIA?
4:57:27 PM
COMMISSIONER GALVIN responded that there will be continual
reimbursement within the general structure of AGIA and some
formality to that aspect of the process. He also expected that,
given the magnitude of the project, they would be updating the
legislature on a fairly regular basis and having fairly open
discussions about how things are moving forward. From the
vantage point of the license itself, there will be a more formal
review periodically.
4:59:12 PM
CHAIR HUGGINS said one recommendation they have received is a
quarterly report to LB&A on the status of the project, cost
overruns, impacts to the tariff, risk factors, modifications,
and compliance by the licensee. He asked if the administration
would object to the legislature defining what elements they
should report on, the timing of that and who they report to.
4:59:59 PM
COMMISSIONER GALVIN said he believes it is inherent in the
relationship between the legislature and the administration that
they can ask for that kind of information and thinks it would be
very helpful to ensure that the administration understands their
expectations.
5:00:30 PM
CHAIR HUGGINS asked a representative from DNR to come forward to
talk about right-of-ways and if there is any exclusivity.
5:00:53 PM
DEPUTY COMMISSIONER RUTHERFORD, Department of Natural Resources
(DNR), said AS 38.35, which is the Right-of-Way Leasing Act, is
very explicit that right-of-way grants are not exclusive even
after a project is built; however, once a project is built the
state has a responsibility to protect its operational integrity.
So to some degree, once a project is in the ground, it has a
preferential right; but the department could literally put
grants of right-of-way on top of one another until a particular
project is built.
CHAIR HUGGINS asked who the AGIA pipeline coordinator reports
to.
DEPUTY COMMISSIONER RUTHERFORD answered that it reports directly
to the governor.
CHAIR HUGGINS asked who the coordinator for "Stedman Pipeline
Company" would report to.
DEPUTY COMMISSIONER RUTHERFORD said the Joint Pipeline Office
(JPO) is supported by federal and state agencies. For the state
of Alaska, the lead is the State Pipeline Coordinators' Office,
in the Department of Natural Resources. If they had a
coordinator working to move another project forward, they would
try to integrate that as much as possible with the Joint
Pipeline Office. In fact, Drue Pearce, the federal coordinator,
is working to coordinate their activities as much as possible
with the Joint Pipeline Office, Bureau of Land Management (BLM)
and the federal Department of Transportation. The goal is to
integrate oversight through the JPO to maintain the same types
of records and oversight capabilities.
5:03:36 PM
CHAIR HUGGINS said it concerns him when people with the same
function are reporting to different agencies. He asked if there
was any way she could envision that would be a fully integrated
parallel system that dovetails into the same decision-making
process.
5:04:05 PM
DEPUTY COMMISSIONER RUTHERFORD admitted they had recommended
that the AGIA coordinator be located within the Department of
Natural Resources so it could function with the Joint Pipeline
Office; but there is nothing to preclude the governor from
directing the pipeline coordinator under AGIA to coordinate with
the Joint Pipeline Office. Obviously that is the intention, to
try to coordinate to avoid redundancy and so the paperwork
systems and regulatory oversight are aligned as much as
possible.
CHAIR HUGGINS asked if she would be recommending that course of
action to the governor.
DEPUTY COMMISSIONER RUTHERFORD answered yes, they have been
talking about it but wanted to be sure there was actually a
project moving forward under AGIA before spending money.
5:05:00 PM
CHAIR HUGGINS repeated that he felt it was important to have
some unity of effort in command and supervision.
5:05:16 PM
SENATOR THOMAS asked if the state has a right-of-way between
Delta and the border.
DEPUTY COMMISSIONER RUTHERFORD said there is no right-of-way
alignment. When the federal government granted lands to Alaska,
they provided easements over those lands and the same is true
for most of the lands that were granted to the Alaska Native
Claims Settlement Act (ANCSA) Corporations. So she didn't
anticipate any serious problems in creating a right-of-way.
SENATOR THOMAS asked how that coordinates with any right-of-way
TransCanada may have through that area.
DEPUTY COMMISSIONER RUTHERFORD explained that the work
TransCanada did previously on rights-of-way is being revoked and
they are reapplying for all of their federal and state rights-
of-way. So there is no conflict; but they had a long meeting
with Drue Pearce a week and a half a ago and she reconfirmed
that the federal rights-of-way are not exclusive.
5:06:41 PM
CHAIR HUGGINS asked if the state had been involved in
negotiating tariffs and rates with TransCanada in the past 10
years.
DEPUTY COMMISSIONER RUTHERFORD answered yes, there were
discussions between the state, TransCanada and others during the
Stranded Gas Development Act negotiations. They were not on
tariffs, but on commercial issues directed toward tariff
structure.
CHAIR HUGGINS wondered if any of the items discussed should be
brought before the committee.
DEPUTY COMMISSIONER RUTHERFORD said she did not believe so. The
negotiations with parties other than the three majors were never
completed and no "papering" of contracts was done.
5:07:54 PM
CHAIR HUGGINS asked if she was part of that process.
DEPUTY COMMISSIONER RUTHERFORD affirmed that she led the
negotiations between the state of Alaska, TransCanada and
MidAmerican.
CHAIR HUGGINS asked if the $500 million or treble damages were
part of that process.
DEPUTY COMMISSIONER RUTHERFORD said they didn't get far in that
process and nothing was committed to contract. It was a very
different approach than was conceived in AGIA and the types of
risk were slightly different from those supported by the AGIA
concept. There were trade-offs between the types of risk the
state was taking versus those the company would have taken.
5:09:06 PM
MS. HARRIS urged Ms. Rutherford to be cautious, as those matters
are confidential under the Stranded Gas Act and answering what
wasn't in there could lead to disclosure of confidential
information. She also said she believes that information is
available to the legislators in a data room if they sign a
confidentiality agreement.
5:09:40 PM
CHAIR HUGGINS understood, but stressed that all of the
legislators are concerned about making things public and asked
when they could anticipate that stranded gas information would
be available to Alaskans.
MS. HARRIS said once the information was made confidential under
The Act, there was no provision for it ever to be made public
because it dealt with proprietary business information.
5:10:45 PM
CHAIR HUGGINS said "So you don't anticipate it being released?"
MS. HARRIS said not under the terms of the Stranded Gas Act,
which is still in effect.
5:10:59 PM
SENATOR GREEN said she understood that the state had indeed
agreed to release the information and TransCanada asked that it
not be released due to confidentiality issues.
5:11:57 PM
MS. HARRIS said the state does not have the ability to release
the information that was made confidential under the Stranded
Gas Act; that confidentiality is still in place. The state did
release those documents it could, those that were confidential
under deliberative process and did not disclose proprietary
information.
5:12:41 PM
SENATOR GREEN ventured that it would be up to TransCanada to
come forward and provide them with that information; she asked
if that was correct.
MS. HARRIS said TransCanada could provide information within its
possession; she does not know what constraints they may have.
The Stranded Gas Act imposes confidentiality on information
received by the state.
SENATOR GREEN reiterated that it was her understanding the
administration agreed to the release of the information and said
it was up to TransCanada to release it.
MS. HARRIS said she is not aware of that.
5:13:33 PM
CHAIR HUGGINS said some of his neighbors have asked about the
$10 billion.
5:14:25 PM
DEPUTY COMMISSIONER RUTHERFORD said the $10 billion was with
regard to the North Slope producers in the Stranded Gas Act and
that information, insofar as it was calculated by the state and
not confidential, has been made available.
SENATOR GREEN interposed that is the information she referred
to.
DEPUTY COMMISSIONER RUTHERFORD commented that there is an
extensive body of information that was not released for any of
the negotiations with TransCanada or the 3 major producers,
which is still required to be held confidentially. The $10
billion figure is the result of an Econ One report submitted at
LB&A's request for their analysis and that is online as part of
the LB&A reports.
5:15:10 PM
SENATOR WAGONER said he and Mark Myers, Director of Oil and Gas,
calculated the first figure, which was $13.2 billion in upstream
concessions, during the Stranded Gas Act negotiations. He sent a
letter to the administration asking them to verify their facts
and figures or to respond with a corrected amount. Because he
never received a response, he thought that letter must have
contained information that was accurate. Econ One then came up
with a figure of $10.2 billion in upstream concessions, a
difference of $2 billion.
5:16:19 PM
CHAIR HUGGINS asked if Deputy Commissioner Rutherford was
actually one of the architects of AGIA.
She answered "Yes."
CHAIR HUGGINS asked who proposed the $500 million figure.
DEPUTY COMMISSIONER RUTHERFORD did not recall but did recall
that it was based upon the state taking on part of the risk for
moving the project forward in the early stages as well as the
concept that it would take about 1$ billion to get to a FERC
[Federal Energy Regulatory Commission] certificate.
5:17:26 PM
CHAIR HUGGINS asked if that was boiler-plated during this
administration or previously.
DEPUTY COMMISSIONER RUTHERFORD said discussions about what it
would cost to get to FERC certification were part of the
Stranded Gas Negotiations; and those came about because they
were trying to embed the contracts with protections to ensure
the project would move forward. She didn't quite recall when the
concept [with regard to AGIA] came about.
5:18:06 PM
CHAIR HUGGINS asked about the concept of treble damages.
DEPUTY COMMISSIONER RUTHERFORD said she believed that emerged as
part of the AGIA discussions.
CHAIR HUGGINS asked who the architect of that thought process
was.
DEPUTY COMMISSIONER RUTHERFORD believed it was part of the
discussion about how they could encourage participants in the
AGIA process to take on the risks of moving a project forward
and how they could be assured the state would not move away from
them at some point after they had made a significant investment.
It was a way to encourage participation in the RFP or RFA.
CHAIR HUGGINS asked if those discussions were staffed with any
pipeline company representatives.
DEPUTY COMMISSIONER RUTHERFORD answered "No sir."
5:19:21 PM
SENATOR STEDMAN asked if Ms. Rutherford could walk them through
the process of the 50 percent match and how it evolved, as well
as the reimbursement if the licensee passes a successful open
season.
5:20:12 PM
DEPUTY COMMISSIONER RUTHERFORD reiterated that the 50 percent
was to encourage participants to come in during the early stages
of the project, when there are a great many unknowns and the
highest risk. The state recognized that it was asking potential
applicants under AGIA to accept the responsibilities associated
with the "must haves," including the debt-to-equity ratio, open
season commitments, expansion commitments, and other things that
would be a burden; so the $500 million was intended to be a
commitment by the state of Alaska to participate in that highly
risky period of time and to encourage applicants to make the
commitment to move the project, not only to an open season, but
beyond toward certification. In doing so, there would be a great
deal of valuable information gleaned through the field work and
the regulatory process; so even if the project never reached
fruition, at least the state would have that information to help
move the project forward with someone else.
5:21:42 PM
SENATOR STEDMAN asked why they should provide reimbursement
beyond a successful open season when the midstream risk is
diminished.
DEPUTY COMMISSIONER RUTHERFORD replied they want to ensure the
project actually does get a certificate and that they will have
the information available as things progress. They also want to
show a commitment by the state of Alaska in this project. The
$500 million is an investment that is of benefit to the state
for multiple reasons; it is buying commercial terms such as: low
debt-to-equity structure; open access pipeline in terms of
regular solicitation of new gas; regular open seasons every 2
years; and the commitment that the $500 million will not be
built into the rate structure. So over the 25 year life of this
project, the state will get a reduction in the tariff that will
not only return the original $500 million but $2 million more.
In addition, those open season elements that are part of the
"must haves" will ensure that the other players have a fair,
open playing field so they can make investments and, if they
find new gas, can get it to market.
SENATOR STEDMAN said when they worked through the AGIA process,
they thought there would be a lot of participation and several
successful applicants. It turned out there was only 1 and some
of the legislators would not consider that a very competitive
selection process.
5:24:58 PM
What happened, he asked, between the time they put AGIA together
and today?
DEPUTY COMMISSIONER RUTHERFORD stressed that it was a
competition. None of the applicants knew how many others would
be participating in that competition, therefore they had to make
their proposal the best they could find corporate approval to
offer. They heard from a couple of other players that there was
consideration by companies such as BG [BG Group plc] and
MidAmerican in the participation. MidAmerican felt there was too
much insecurity in the state of Alaska right now for them to
participate.
CHAIR HUGGINS asked her to expand on why MidAmerican pulled out.
DEPUTY COMMISSIONER RUTHERFORD said they indicated there was
political uncertainty.
SENATOR DYSON interjected "Specifically the corruption stuff
going on here."
CHAIR HUGGINS agreed that there were investigations going on
through the state.
DEPUTY COMMISSIONER RUTHERFORD continued that BG indicated they
had lost the pipeline partner with whom they were putting
together a proposal. They also felt that getting an export
license approved in Washington DC, given this political
environment and the energy situation, was going to be very
difficult. Finally, they weren't at the point, as a producer,
that they had identified proven reserves of gas. So it was that
combination of factors that drove them away from the
competition.
None the less, when applications were put together by various
parties, they did not know who else would be participating in
that competition; so she believed they got the best offers the
various companies did submit.
5:27:33 PM
SENATOR STEDMAN asked if Alaska wouldn't have been better off
just to negotiate with TransCanada.
DEPUTY COMMISSIONER RUTHERFORD believed it was completely
appropriate for the state to identify what it requires in order
to move this gasline project forward. To a large degree, that is
what AGIA does, it establishes the foundation under which Alaska
is willing to participate by value transfers; and the upstream
inducements under AGIA are value transfers.
The legislature made a commitment not to change the fiscal
regime for 10 years from first gas. There are commitments on
royalties, Alaska's ability to switch in-kind to in-value and
the reverse, and how they value the royalties. That is a value
exchange to the upstream participants in this project. The
midstream requirements, the "must haves" establish the
foundation by which the state of Alaska is willing to transfer
value from their side of the pie to someone else's by providing
protections on the debt-to-equity ratio, the solicitation of new
gas, and the expansion of the pipeline. Those are all incredibly
important for Alaska's long-term economic interests. They are
the elements that will ensure viable exploration and development
activity on the North Slope and that Alaskans have long-term
upstream jobs.
5:30:42 PM
SENATOR MCGUIRE advised Deputy Commissioner Rutherford that
constituent emails made it very clear that many people are
skeptical about AGIA for a lot of reasons. Among them are
concerns that there is only 1 player and that the there will be
a transfer of control over Alaska's sovereignty and resources.
The biggest however, is what it will look like after an award of
this exclusive license. She asked Ms. Rutherford to describe
what practical things will occur in her department and elsewhere
and to explain what will happen if they get to an open season in
2 years and don't get the FT's [firm transportation commitments]
that are needed.
5:32:57 PM
DEPUTY COMMISSIONER RUTHERFORD responded that, as Commissioner
Galvin indicated multiple times, they expect to begin
discussions with the producers. Under the Denali Project, the
producers indicated they were only willing to move to open
season with additional state concessions and AGIA provides the
vehicle for some concessions.
5:33:40 PM
CHAIR HUGGINS assumed that will be the producers' position no
matter what the project; they will want some fiscal certainty.
He asked if that is correct.
5:34:09 PM
DEPUTY COMMISSIONER RUTHERFORD said yes, the producers indicated
they will want that and AGIA does have some upstream fiscal
certainty both on royalties and the tax side; so they see AGIA
as the appropriate vehicle for moving the project forward. In
fact, it is the appropriate vehicle because they have some
inducements, some value, and the fiscal terms that protect the
state's interests. As Commissioner Galvin indicated, they expect
that the producer companies will want to discuss something
further, as was the case during the Stranded Gas Development Act
negotiations, and they want to be able to fully vet those.
During the previous 9 months of evaluation, they learned a great
deal about the economics of this project and where the risks
lie; one of the things they learned is that this is a very
viable project under most scenarios.
5:36:21 PM
SENATOR MCGUIRE asked Commissioner Galvin again whether he had
been a party to any other processes in this administration, that
attempted to engage all of the parties.
DEPUTY COMMISSIONER RUTHERFORD answered that there had been no
efforts to sit down and mediate; but prior to the introduction
of AGIA they did reach out to the various companies and ask them
what the state might provide in terms of inducements to
encourage their participation. The producers did not display a
lot of interest in that dialog. They weren't comfortable with
the AGIA process from the beginning; but the administration did
try to embed AGIA with those elements they thought were
reasonable.
5:38:01 PM
SENATOR MCGUIRE said she doesn't mean pitching AGIA, she means
what efforts were made prior to that time besides asking them to
be part of AGIA. What efforts were made to bring together the
people who are needed to get a gasline built?
DEPUTY COMMISSIONER RUTHERFORD responded that, having sat
through 2 ½ years of negotiations that didn't result in any
timeline to move the project forward, any commercial structure
that would keep the tariff low, or any commitment to expand the
pipeline when new gas was available, she doesn't think there is
anything else they could have done to create a different
proposal than what was floated under stranded gas. "If you
continue to do the same thing the same way and expect a
different outcome, it's the definition of insanity" she said, so
they decided not to try that again. It was clear that Alaskans
and the legislature did not support that proposal; so it was
time to change the dynamic and AGIA was the outcome.
5:40:15 PM
SENATOR MCGUIRE said the one other place she gets nervous about
is that there are a lot of "must haves" on the front end about
getting gas into the line, tariffs, etc. But there are very few
on the back end where the construction has to begin.
Specifically, Alaska is pretty low on TransCanada's project
schedule. Mackenzie Delta is high on their priority list, then
there is Keystone and other things. She asked what they can do
to assure her that this project doesn't get stacked up and
locked into a timeline that does not coincide with the state's.
5:42:21 PM
DEPUTY COMMISSIONER RUTHERFORD said AGIA required the applicants
to provide a specific timeline for an open season, FERC
certification and the beginning of construction (assuming a
successful open season). That is why they need a significant
amount of money, to ensure a successful open season. They are
totally committed to having a successful open season by 2018 and
she believes TransCanada is also committed to that. She
recognized that the appropriation request for the first year is
high; but if the producers are motivated, the administration
wants to be able to quickly analyze their requests, discuss them
with the legislature and move the project forward, because open
season is the key.
5:44:14 PM
SENATOR MCGUIRE wanted her assurance as Deputy Commissioner of
the Department of Natural Resources, that when there are
competing projects that could exceed the 500 mcf, DNR will
uphold its obligation to process those applications and do what
is in the state's best interests.
DEPUTY COMMISSIONER RUTHERFORD assured her and the committee
that the department is committed to the laws of Alaska and will
facilitate any project to the best of their ability within the
law.
5:46:12 PM
SENATOR GREEN asked if, were they to have the opportunity to
start writing AGIA over, it would contain different provisions.
DEPUTY COMMISSIONER RUTHERFORD said there are small changes that
could be made, but she thinks AGIA is a good product and will
create a project.
SENATOR GREEN referred to Deputy Commissioner Rutherford's
comment about how hard she had worked on this for the last 2 ½
years, and noted that takes her back to the Murkowski
administration. She asked if Ms. Rutherford remained committed
to the attempts to create a contract under the Stranded Gas
Development Act throughout that process.
DEPUTY COMMISSIONER RUTHERFORD answered that she remained
committed to getting a deal under Stranded Gas Development Act
that was good for the state. She was uncomfortable with some
elements being negotiated under the Stranded Gas Act which she
felt were outside the law, outside what the legislature had
directed them to pursue. For example, they had been instructed
not to include royalties, but royalties were in there. They were
not to look to other areas where they had begun negotiations and
she was uncomfortable with that; and she was uncomfortable with
the level of risk the state was being asked to undertake. But
she was absolutely invested and committed to the state's
interests in trying to move this project forward.
5:49:01 PM
SENATOR GREEN commented that she was not in on the project to
the end.
DEPUTY COMMISSIONER RUTHERFORD said she left November 1, 2005.
SENATOR GREEN asked Ms. Rutherford to review her work history
and employment for the last 10 years or so.
5:49:42 PM
DEPUTY COMMISSIONER RUTHERFORD acquiesced. She said she worked
for DNR from about 1990-2003. In 2003 she resigned and became a
partner at Jade North with John Shively and Patty Belowski for
10 or 11 months. She decided she did not want to work in the
private sector, so she sold out and rejoined DNR under Tom
Irwin. In November 2005 however, when Tom Irwin was asked to
resign, she went to work for the Mental Health Trust Authority.
She took a leave of absence from there on December 7th of
Governor Palin's term and then left the Trust Authority
permanently in March to return to DNR.
SENATOR GREEN asked who her clients were while working at Jade
North.
DEPUTY COMMISSIONER RUTHERFORD said she worked with Core [Core
Oil & Gas Limited]. She did a couple of projects for a small oil
and gas company that worked in the Cook Inlet and which had a
contract with Foothills Pipelines, and worked with a company
doing EIS work for the federal government.
SENATOR GREEN asked if she had any direct dealings with
TransCanada or if it was only through Foothills.
DEPUTY COMMISSIONER RUTHERFORD said she worked on two different
projects with Foothills as a partner with Jade North, which had
a standing contract with Foothills.
5:52:18 PM
SENATOR DYSON said he and Senator McGuire probably pay more
attention to what goes on in Canada than their colleagues do and
it has always been his view that building a pipeline across
Canada without a major Canadian partner is problematic. He
thought just about everyone, including the producers, agreed.
During the stranded gas negotiations, he asked Frank Clark and
Governor Murkowski on several occasions if they understood and
agreed with that. Mr. Clark kept assuring him that the Stranded
Gas Act was designed to push the producers into finding a
partner on the Canadian side, but it never happened. It bothered
him because he never saw the "hooks" in the Stranded Gas Act
that added any incentives to do that. Mark Meyers said Alaska
needs a general law to facilitate bringing the parties together
and that the AGIA process would encourage a "marriage of
convenience" because an independent pipeline company that has
the right-of-way permits and the surplus capacity going east
from the hub is a huge asset. He felt what they had done was to
change the paradigm from one that was led by the producers and
didn't work, to the opposite, one that has produced an
independent company that happens to be Canadian. He added that
the economics are compelling enough to force the two to get
together.
He also pointed out that, with regard to the order of
TransCanada's projects, at least one of them was already under
contract so it was logical to go forward with the expansion of
that. He believed Mr. Palmer would say that Hal's remarks
weren't about what the company's priorities are, but about the
logical progression of work. He had expected the Mackenzie
Valley project would be in place already and said he thought
they'd received a letter from TransCanada about the matter but
couldn't locate it at that moment.
5:56:32 PM
SENATOR MCGUIRE asked if they would have an opportunity to speak
with Mr. Palmer.
CHAIR HUGGINS said he would be coming forward after Deputy
Commissioner Rutherford. He asked Senator Dyson if he could find
the TransCanada letter he referred to before Mr. Palmer comes
forward.
5:54:40 PM Senator Bunde joined the meeting.
5:57:07 PM
SENATOR STEDMAN said when they went through this process, there
was a document that came out in the Resources Committee that
used the "insanity quote" and asked the deputy commissioner if
she was the author of that quote. He thought it was a little
over the top to say the least.
DEPUTY COMMISSIONER RUTHERFORD said it is something she is in
the habit of saying but that she did not embed that comment in
the letter. As head of the gasline team, she apologized for it,
as she felt the quote was inappropriate in that context.
SENATOR STEDMAN asked if she knew who the author was.
DEPUTY COMMISSIONER RUTHERFORD said she did not.
SENATOR STEDMAN asked if she was curious enough to ask.
DEPUTY COMMISSIONER RUTHERFORD said things were moving very
quickly at that time and sometimes escaped without adequate
review. She agreed that she could go back and see if anyone
remembers who did that.
SENATOR STEDMAN said he would appreciate it if she would get
that information back to the committee.
5:58:50 PM
CHAIR HUGGINS set up a scenario for the deputy commissioner's
consideration and comment. It assumes that TransCanada has the
license; Stedman Pipeline has expanded to Stedman-Thomas
Pipeline and bought out Denali. They have financing and had a
successful open season in which Conoco Phillips, BP and Exxon
committed gas. He wanted to know how she would see things
playing out between Stedman-Thomas Pipeline and TransCanada.
DEPUTY COMMISSIONER RUTHERFORD said she was on record as having
said that should an alternative project, it is free to do so
without any state inducements. If they want to avail themselves
of the AGIA inducements without triggering treble damages, they
would have to become partners with TransCanada.
CHAIR HUGGINS asked what happens if the project is running a
parallel course to the TransCanada project.
DEPUTY COMMISSIONER RUTHERFORD said if the alternative project
moved forward, got to an open season and received gas, moved on
to all of the field, regulatory, engineering design and
commercial work necessary to get a FERC certificate and was not
asking for anything from the state, it would be like any other
project. It would be going through the normal processes and
every applicable agency would be working to facilitate it as
they would any project. The only problem would be if they wanted
inducements from the state.
6:02:09 PM
CHAIR HUGGINS asked her to help him out with the disposition of
the status of their partners, TransCanada, in this scenario.
DEPUTY COMMISSIONER RUTHERFORD said she thinks TransCanada
understands that if another project decides to proceed on its
own without any state inducements, it is absolutely free to do
so. TransCanada, if it becomes the AGIA licensee, understands
that is a risk they've accepted. She assumes TransCanada would
just meet the other project at the border; they've indicate
that's their fall-back alternative all along.
CHAIR HUGGINS wondered if there was any timeline on the
termination of our relationship with TransCanada in that case.
DEPUTY COMMISSIONER RUTHERFORD said she could not speak to that,
but it would probably become fairly obvious to both parties at
the time they had in-service, or even at construction, if an
alternative project proceeded without inducements.
CHAIR HUGGINS clarified that he was concerned about how long the
state would continue to grind through that $500 million if
another project appeared to be proceeding along a successful
timeline.
DEPUTY COMMISSIONER RUTHERFORD explained that part of the
state's assurance under the AGIA license is a commitment for
this project to proceed to [FERC] certification, even through an
unsuccessful open season. If that stimulates an alternative
project to proceed alongside it, that isn't a bad thing; but she
doubts that will occur.
6:04:37 PM
DEPUTY COMMISSIONER RUTHERFORD admitted that she failed to talk
about AGIA's 43.90.240 abandonment of the project. The state and
the licensee can mutually agree to abandon the AGIA license, but
there is no time-line embedded in that section.
CHAIR HUGGINS reiterated that his concern regarding the timeline
is how long the state continues to spend that $500 million,
because at some point they need to cut their losses. He said
he'd like to build some schools with that $500 million, if it's
available.
DEPUTY COMMISSIONER RUTHERFORD reiterated that the $500 million
is a commitment to work through this project. If the state said
it was not going to proceed after a failed open season, then she
assured him there would be a failed open season. So this is a
commitment on the state in exchange for commercial values and to
move the project to the [FERC] certificate. There is risk on
both sides; but she believed the state would end up with a
project that progresses in unison.
6:06:03 PM
SENATOR DYSON said that he found the letter that turned out to
be a reaffirmation of TransCanada's commitment to meet the
timelines.
6:06:51 PM
CHAIR HUGGINS asked if there were any further questions for
Deputy Commissioner Rutherford. Seeing that there were none, he
called a brief at ease.
CHAIR HUGGINS called the meeting back to order at 7:43:04 PM.
7:43:11 PM
TONY PALMER, Vice President of Alaska Development for
TransCanada, Calgary, Alberta, Canada, introduced himself.
CHAIR HUGGINS asked him to give TransCanada's take on some
figures in a report he had provided to Mr. Palmer, which was
prepared by the National Bank of Canada, and alluded to how much
gas was owed to Canada based on certain scenarios.
MR. PALMER said he had the opportunity to see the report for the
first time during the supper break. It is a document produced by
a former stock analyst for National Bank Financial. There is a 1
page cover note dated November 2002 that refers to a 10 page
study that someone, in a hand written note, indicated was a 2001
report. He offered to put some of this in context for the
members. Reading from the third paragraph of the cover note, the
writer stated that:
The contents of the memorandum, unless indicated
otherwise, reflect solely the results of our study and
at times our provocative interpretation of certain
issues. This may challenge mainstream thinking and if,
and to the extent it does, we view our underlying
objective of stimulating thought and discussion as
met.
He went on to say that the writer does, in fact, have some very
provocative views. He reminded them that this was written almost
six years ago and directed their attention to page 4, where the
writer recommends that if Alaska moves gas through a pipeline,
he favors the Northern, submarine route from the North Slope to
the Delta and thence along the Mackenzie Valley. In fact he
gives some other alternatives including gas by wire, conversion
of gas to electricity in the arctic and transmission to markets;
gas to liquids conversion; gas by liquifaction, or LNG and
shipment by ice-strengthened tankers to markets in the Atlantic
Basin and the Pacific Rim; and lastly and most controversial, is
a gas by seafood/meat, "conversion of gas through fermentation
into a product consisting of 70.6 percent protein for fish
farming in southern Alaska and elsewhere, meat and poultry
industries and probably human consumption."
CHAIR HUGGINS interrupted to ask if it was a Canadian or an
Alaskan who did this study.
MR. PALMER answered that this gentleman is a Canadian. He
continued, "This product generates by far the highest value
added for arctic gas." So converting by seafood and meat into
fish farms seems to be his recommendation. Speaking to the
specific issue that Senator Huggins asked him to respond to, Mr.
Palmer said the writer does make reference to what he calls "the
nasty little secret," which he refers to as the understanding
between the USA and Canada, that in return for "gas exported
through the pre-build facilities of the (never-completed) Alaska
Natural Gas Transportation System (ANGST) prior to its
completion," the USA would repay Canada with Alaskan gas, once
an Alaskan gas pipeline (AGP) is completed. The writer goes on
to say more than 12 tcf of Canadian gas has been exported, hence
the US may wish to avoid building an Alaska Gas Pipeline "lest
the 'nasty little secret' be awakened from its slumber."
MR. PALMER asked what Chair Huggins would like him to comment
on.
CHAIR HUGGINS asked if Alaskans should be concerned by any
scenario that might come to light in which Alaskan gas is
obligated to Canada. He added that document was given to him by
a participant earlier in the week.
7:48:21 PM
MR. PALMER said there is nothing in the treaty between Canada
and the United States that relates to this. He stressed that
even if that were the case, Canada does not need Alaska's gas;
Canada is exporting more than 50 percent of its production of
gas. Western Canada produces approximately 16 bcf/day of gas and
exports 9 bcf/day to the Lower 48. When this Alaska gas project
is projected to be in place, it is expected that Canada will
continue to have a surplus of 6 to 7 bcf/day. He affirmed that
Alaskan gas, if delivered at that time, will reduce the
transportation costs for Western Canadian producers; but Canada
does not need Alaskan gas. They don't need it for the oil sands;
they don't need it for electric generation; and they don't need
it for residential, commercial or industrial use.
CHAIR HUGGINS said when he was down in the oil sands, he heard
an expectation that there would be a growing demand for a source
of energy to make the tar sands work, and one thing that was
discussed was Alaska's natural gas. He also read in newspapers
in and about Alberta that exploration and development was
decreasing because of the commerciality of natural gas as
opposed to the tar sands.
7:51:34 PM
MR. PALMER agreed that there is expected to be a significant
demand increase in Western Canada for natural gas and that
Western Canadian supply will be relatively flat. But that
growing demand in the oil sands is expected to be in the area of
2 bcf/day in the next decade, which means there will still be a
surplus of 6 to 7 bcf/day of Western Canadian gas to be exported
to the Lower 48 market.
7:52:28 PM
SENATOR DYSON was intrigued by the idea that the Canadian
government could somehow commandeer our gas. He said that, as he
understands it, the shippers will put their gas into a pipeline
and it will be delivered to a market they have determined;
TransCanada is no different from a railroad that someone ships
freight on. He asked Mr. Palmer under what circumstances either
commercial interests or the government of Canada could
commandeer Alaska gas.
7:53:14 PM
MR. PALMER responded that Canada and the United States have a
treaty Canada and the United States that protects gas in transit
from one country through the other and back into the originating
country. That protection will be afforded to Alaskan gas.
TransCanada, if granted this license and if they construct this
project, will not own the gas or direct it; they will be exactly
like a railway, moving gas to where their customers indicate it
should go. So, he said, he was not aware of any way in which the
government of Canada could commandeer Alaska's gas.
SENATOR DYSON said he assumed the shippers would have a long-
term contract.
7:54:45 PM
MR. PALMER corrected that most gas is now sold into the short-
term market. Shippers can still enter into a long-term
commitment, but often choose not to do so. They generally sell
their gas into a liquid hub or into a city gate and do not have
a long-term market.
7:55:22 PM
CHAIR HUGGINS thanked him and apologized if he was offended by
his bringing up the document discussed earlier; but maintained
that, if the questions are raised they should be asked.
MR. PALMER insisted that he took no offense.
SENATOR MCGUIRE referred to conversations about the importance
of the Mackenzie line and said she would like an explanation in
layman's terms of how this would all "marry up" in time because,
as Senator Dyson said earlier, the expectation was that the
MacKenzie line would have already been built. She asked how the
reality will play out when there are two projects that require
steel, manpower and TransCanada's attention as a company.
7:57:24 PM
MR. PALMER noted that TransCanada has a modest role (3 to 5
percent) in the Mackenzie project, which is led by an Exxon
subsidiary called Imperial Oil, and includes Shell and Conoco
Phillips. There is also a partnership called the Aboriginal
Pipeline Group that has the opportunity to take a significant
position in the project and TransCanada is funding that. He said
that project is still in the regulatory process and has been for
more than four years. They expect to get a decision next year.
If that occurs and if the sponsors have reached a resolution
with the government of Canada on fiscal terms, they believe it
can be completed (in service) by 2014 to 2015. The schedule
TransCanada has put forward projects that, if they are granted
this license, they will move forward [with the Alaska pipeline]
and be in service by 2018, assuming they are successful in
getting regulatory approval and attracting customers. They
believe that if those projects remain 2 to 4 years apart for in-
service, that will be optimum for both in terms of staging labor
and materials. If they start to overlap, that could be
problematic for both projects.
The government of Canada has stated publicly many times that
they would prefer to have Mackenzie gas finished first; however,
they have also committed in a treaty with the government of the
United States to expedite this project, and that treaty remains
in place. That assumes that the project is built by TransCanada;
Foothills is the named Canadian sponsor under that treaty. So it
appears that if Mackenzie works its way through the regulatory
process as expected, they should move ahead without conflict. If
MacKenzie is delayed, this project may experience some higher
costs. If this project is approved by the legislature and has a
successful open season, it will be in construction by 2015 and
in production by 2018.
8:02:18 PM
SENATOR MCGUIRE questioned what TransCanada's position will be
if there is a delay and the project schedules bump into each
other.
MR. PALMER answered that their obligation would be clear. If
TransCanada has this license, is successful with the regulatory
process on this project and can attract customers, they have an
obligation to this project. He stressed that they want to see
this project completed. He admitted that they also thought the
Mackenzie project would be completed by this time. He pointed
out that when TC originally started working on this project,
they thought it would be in service by 2008, but it too was
delayed. "We have no control over the regulatory process" he
said.
8:05:16 PM
SENATOR MCGUIRE ventured, "So this project goes through a
special office, not the NEB; and you are saying that if
everything works as it is supposed to, you will continue to
operate in the logical economic manner to complete this project
regardless of political pressures."
MR. PALMER advised that the project has to be economic, from a
customer standpoint and everyone else's. If it is, they will be
highly motivated to complete it.
8:08:09 PM
SENATOR THOMAS asked if, with the concern to open the
continental shelf and ANWR, there is a possibility of MacKenzie
going by an "over the top" route.
MR. PALMER said TransCanada was one of the original 30 companies
involved in the Arctic gas project, which did not receive
regulatory approval. TransCanada has not looked at that
alternative in at least seven years; but they did look at the
potential savings of going off-shore and determined that the
savings as opposed to going down the highway were too minimal to
offset the additional risks. There were also environmental,
political and other issues.
8:12:25 PM
CHAIR HUGGINS asked again whether TransCanada was prepared to
indemnify the state of Alaska regarding the withdrawn partners.
MR. PALMER said that issue has been addressed by a number of
parties; TransCanada has, through its commitment not to attempt
to recover damages, has already indemnified the state of Alaska
for the roles it intends to play. With regard to the debate by
some parties that somehow FERC would grant the inclusion without
TransCanada having requested it, he said he has never seen that
occur in his 23 years in front of the National Energy Board.
Furthermore, he does not believe the FERC would grant it even if
they did seek it.
CHAIR HUGGINS persisted that his question remains if TransCanada
will indemnify the state.
MR. PALMER responded "Senator Huggins, if the state is
requesting from TransCanada a blanket indemnification for any
possible outcome that one can imagine, that is not something
that any corporation will take on lightly." He insisted that
TransCanada has been responsive to the roles it thinks the state
will have and, in the event that the state chooses to become an
equity partner in the future, it will deal with the state of
Alaska on that issue as it would any potential equity partner;
but that is a very different thing from granting the state of
Alaska a blanket indemnity for any possible outcome.
CHAIR HUGGINS pointed out that he did not say "blanket." He
asked if they would provide a qualified indemnification.
MR. PALMER returned "With regard to what?"
8:16:00 PM
CHAIR HUGGINS responded that the letters from withdrawn partners
were not comforting; they were unwilling to waive any future
rights.
MR. PALMER repeated that the license contains TransCanada's
responses to this issue. Their responses are clear; they have
agreed not to seek to include any damages in the rates.
CHAIR HUGGINS challenged "If you think we're already
indemnified, will you formalize that in an indemnification
process that is legal and binding for you and for us?"
MR. PALMER insisted that it is already legal and binding on
them; TransCanada has already indicated clearly and repeatedly
it will not seek to recover this in the rates.
8:17:46 PM
SENATOR GREEN asked Chair Huggins if he recalled the FERC
representatives saying in a previous meeting that, if there were
an adverse court decision regarding withdrawn partners, FERC
would consider adding it into the rate.
CHAIR HUGGINS said that is how he remembers it.
8:19:05 PM
SENATOR GREEN questioned whether, if the state established a
partnership with TransCanada, the plaintiffs in any litigation
with TransCanada could go to the deep pockets of the state to
settle its claim.
8:19:45 PM
MR. PALMER asked Senator Green to define "partners."
SENATOR GREEN could not do so.
MR. PALMER said he couldn't give a legal opinion, but the
state's legal advisors did not feel there was any risk to the
state in their current status. He pointed out that if the state
became an equity partner at some time, those new agreements
might include indemnification.
He reiterated that the regulatory body cannot add any damages
into the rates if a pipeline does not seek to pass them on to
the shippers and TransCanada agreed not to seek to recover those
damages should any occur.
8:23:15 PM
SENATOR GREEN said the issue, as she understood it when they
talked to the FERC, was that if a former partner prevailed
[against TransCanada] in a litigation and there was an amount
owing, they could request a rate adjustment in order to pay
damages or for the liability.
MR. PALMER declined to comment on that because he was not at the
meeting she referred to, but stated that in 23 years of his
personal experience, the regulatory body has never added
anything into the rate without a request by the pipeline.
8:25:08 PM
CHAIR HUGGINS announced a brief at ease.
CHAIR HUGGINS called the meeting back to order at 8:30:25 PM.
MR. PALMER said he wanted to be clear that he was not
misunderstanding Senator Green's question. She said the FERC
said if a request came before them, they would consider it; and
he was trying to express that the only way it would come before
the FERC is if TransCanada sought that recovery, which they
would not do. In the event that it did, it was his belief the
FERC would not grant it; but clearly TransCanada would not put
it before the FERC.
8:31:21 PM
SENATOR GREEN admitted this is uncharted ground. She said what
they discussed was, if there were litigation and the plaintiff
won, and the FERC had said that the rate increase would be paid
by TransCanada and reimbursed to the litigant.... It was an
interesting conversation, she said, and she wished all of it was
on the record. It did give her some insight into the workings of
FERC. She had thought it was very rigid; but the FERC
representatives explained that theirs is a process of
deliberation and choices.
MR. PALMER assured Senator Green that, in the event the scenario
she painted turned out to be accurate, that there was successful
litigation resulting in a liability to TransCanada, the state
has their commitment in the license that they will not seek to
recover it in the rates.
8:33:47 PM
CHAIR HUGGINS asked Mr. Palmer if he had said there is a single
regulatory agency in Canada.
MR. PALMER amended that Canada has a "single window regulatory
agency".
CHAIR HUGGINS asked him to explain that.
MR. PALMER clarified that all regulatory matters for this
project will go through a single agency rather than making it
negotiate with all the various regulatory offices individually.
8:34:57 PM
CHAIR HUGGINS asked how many people are in that single window
agency.
MR. PALMER said there are two at this time, but hundreds would
be seconded to the agency to handle this process when needed.
CHAIR HUGGINS wondered if Mr. Palmer could comment on the fact
that the Canadian Government had not made anyone available to
speak with the legislature thus far.
8:36:29 PM
MR. PALMER countered that he could not speak to what the
Canadian Government would or would not do.
8:37:48 PM
CHAIR HUGGINS pressed that he was disappointed, given that there
is a treaty, that they haven't been able to have a conversation
about process.
MR. PALMER said he does not profess to be an expert in these
matters, but he is not aware that Canadian government officials
appear in front of other legislative bodies from other
governments. At least, he has not seen them appear before other
legislative bodies in other countries.
CHAIR HUGGINS asked when he would anticipate that the interface
between Alaska and the Canadian Government would start to
mature.
MR. PALMER said he understands that the Canadian regulators have
been meeting with Drue Pearce, the Federal Coordinator for this
project, but he was not privy to the subject of those
discussions. He could only say there have been discussions
between the two governments.
8:39:07 PM
SENATOR MCGUIRE said she tried to mediate this matter last week
and could only say that, for this to be successful there needs
to be a concerted effort to facilitate direct communication
between the government of Canada and the State of Alaska. The
federal government doesn't always represent what Alaska thinks;
and this is Alaska's project. The respect that people show each
other in terms of willingness to participate is really important
and, if this is ever to be successful, that has to improve.
8:41:09 PM
MR. PALMER said he understands and appreciates Senator McGuire's
feelings. TransCanada has always tried to be respectful of
Alaska's process and if the project moves forward, they will
certainly express Alaska's views to the Canadian Government.
8:42:11 PM
SENATOR DYSON said he has met with representatives of the
Canadian Government and received a very positive response on
this matter. He did not see any lack of cooperation, respect, or
enthusiasm on their parts and expects that if Alaska had sent a
delegation to meet with them, they would have received an
equally positive reception.
8:43:51 PM
SENATOR MCGUIRE said she was disappointed last week because she
has had such positive interactions with the Canadian government
in the past that she hoped to be able to bring the parties
together.
8:45:31 PM
CHAIR HUGGINS called a brief at ease.
8:46:18 PM
CHAIR HUGGINS called the meeting back to order and announced
that HB 3001 was before the committee.
SENATOR STEDMAN moved to bring HB 3001 (efd fld) before the
committee. There being no objection, the motion carried.
CHAIR HUGGINS stated that he would entertain amendments at this
time. Copies were passed out to the committee members.
8:47:01 PM
SENATOR MCGUIRE moved to adopt Amendment 1.
25-GH3055\AA.8
Chenoweth/Bullock
AMENDMENT 1
OFFERED IN THE SENATE
TO: HB 3001(efd fld)
Page 1, following line 10:
Insert a new bill section to read:
"* Sec. 2. The uncodified law of the State of
Alaska is amended by adding a new section to read:
CONTINGENT EFFECT OF LICENSE APPROVAL: INDEMNIFICATION
FOR LIABILITIES TO WITHDRAWN PARTNERS. (a) The
provisions of sec. 1 of this Act are contingent on the
commissioner of revenue and the commissioner of
natural resources obtaining from the licensee the
licensee's written agreement that the state will 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) To implement this section, 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 the state if the state
acquires an ownership interest in the project; and
(E) other effects on revenue to the state
identified by the commissioner of revenue; 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) Unless the parties otherwise agree, an
agreement entered into under this section may provide
that 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 to be provided
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) 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."
SENATOR ELTON objected.
SENATOR MCGUIRE spoke to Amendment 1, saying it would put in
place a clarification that the state of Alaska is indemnified
for the liabilities that may be outstanding on the part of
TransCanada or TC Alaska to its withdrawn partners. She was
unfamiliar with this method of contracting, wherein a statute, a
request for information and a license application form what is
to be the legally binding document, and said she would be more
comfortable if it was made very clear in Alaska law. As for the
statement that amending this [bill] would negate the process,
she cautioned the body against such a pattern if it were to
continue. That said, she continued, this would make it a
contingent effect of license approval, which is completely
within their power.
8:53:36 PM
She insisted that adding this condition is distinct and
different from amending AGIA, which could perhaps trigger a due
process challenge. She added that, even in that case, a due
process challenge would only be brought if TC Alaska decided
that it was not its intent to indemnify the state; and
everything she had heard so far indicated that they would not
bring that claim.
SENATOR MCGUIRE read the following legal precedent into the
record. (From Cooley Treatise on Statutory Limitations, First
Edition.)
But it is not always essential that a legislative act
should be a completed statute which must, in any
event, take effect as law at the time it leaves the
hands of the legislative department. A statute may be
conditional, and its taking effect may be made to
depend upon some subsequent event.
The effective date put into Alaska's laws does have meaning; it
triggers the operational effect of the law. A statute may be
conditional and it may be made to be conditional upon a
subsequent event. In this case, the subsequent event would be a
grant of indemnification to the state of Alaska for the
withdrawn partner liability.
She read the following additional legal passages from case law
in the Ninth Circuit Court: "It may be the case that a statute
is not operative as law until the date at which it takes
effect..." and "The taking effect of an enacted statute may be
made contingent on the occurrence of one or more stated
conditions. In that event, the statute does not become effective
until the condition or conditions have been fulfilled."
From Singer/Sutherland Statutes and Statutory Construction: "A
statute may take effect upon the happening of a contingency such
as a passage of a law in another jurisdiction, a vote of the
people, or the passage of a constitutional amendment."
8:56:55 PM
Finally, she stated that the argument used to support the
amendment is that the legislature's agreement to award the
license to the prospective licensee takes effect on the
effective date of the section giving approval; but the active
operation of that legal provision becomes complete only if the
contingency or contingencies identified in this amendment are
satisfied.
SENATOR MCGUIRE said this amendment is meant to protect the
people of the state of Alaska from what she believes has already
been agreed to. Should TransCanada and the state of Alaska
decide to enter into an equity agreement, this can be revisited.
SENATOR ELTON voiced several reasons for his objection. First,
he noted that this is a very unusual approach to partnerships.
The relationship Alaska has with explorers who are drilling on
leases could be construed as a partnership because Alaska is
paying 20 percent of the exploration costs; but the explorers
have never been required to provide an indemnity agreement to
protect the state from former or current partners.
8:59:52 PM
Second, he was nervous about the language on page 2, which seems
willing to concede that the state's liability exposure is
extremely broad. It suggests that the liability exposure even
covers construction delay costs. He was not willing to concede
that at the table or in law; and he was certainly not willing
for the legislature to suggest to any potential partner,
including TransCanada, that things like construction cost delays
could be part of an action.
SENATOR ELTON was particularly uncomfortable with the idea of
passing this amendment without more consideration. The bill
itself had, over the course of several months, been examined and
discussed in minute detail; this amendment would dramatically
expand the bill without that kind of careful deliberation. He
did not intend to imply that it was a bad idea; but suggested
that they would be acting hastily to pass it without even an
evening to consider the implications. In fact, he said, he would
prefer that it be offered on the floor, giving committee members
2 days to review it before being asked to vote.
Another concern, he admitted, is that this action would change
the terms of the license by adding another threshold question
before a license can be issued. That suggests the state is
adding another condition that wasn't part of the RFA process and
he believed that 2 things could happen that he thought were bad:
1) the potential licensee walks away, or 2) the state gets sued.
He would have felt much better had this been part of the public
debate process.
9:05:57 PM
SENATOR WIELECHOWSKI said he would also oppose the motion. He
opined that if they ask enough lawyers they'll get different
answers as to whether it is a "must have" that changes the RFP;
but he thinks there is a danger it could. He referenced page 2,
line 11, which requires the Commissioner of Revenue in
consultation with the Commissioner of Natural Resources and the
Attorney General "to determine the form and amount of
indemnification required to be provided by the licensee." He
submitted that there is a real danger we put the entire license
at stake by approving this. Outside of the legal ramifications,
he questioned what kind of signal they would send to the
business community by doing this. What kind of signal would this
send to future producers and explorers who might want to do
business in Alaska?
He pointed out that he has been a lawyer for a number of years
and, although he has been "wracking his brain," he could not
envision any scenario in which the state could get sued under
this license. Fourth, even if there was some potential for
liability here, TransCanada had committed that they would not
include it in their rates.
9:08:54 PM
SENATOR GREEN said one of the reasons for bringing an amendment
in committee is that the response on the floor is likely to be
"If this is so important, why wasn't it offered in committee?"
She added that, if anything would make producers, operators and
others hesitate to come to the state, it would not be this
provision but the PPT they passed last year.
9:09:31 PM
SENATOR WAGONER said they need to look at why this came before
them; it was when one of the major producers talked about
withdrawn partner language.
9:09:57 PM
SENATOR GREEN interrupted that to assign motivation to the giver
of an amendment is not appropriate.
CHAIR HUGGINS chided that Senator Wagoner should let the maker
of the amendment speak to her motivation.
SENATOR WAGONER returned that he was not referring to the
motivation of the maker of the amendment, but about the way this
came before them, not tonight, but when they first began talking
about withdrawn partners. This same producer, he said, has now
entered into a 50/50 partnership on a major construction project
called Keystone with the pipeline company they are talking
about. If there's a liability hanging out there, they certainly
didn't see it when they entered into a contract with TransCanada
to do the other project. So, he felt they should not have to
worry about indemnifying the state and he would be voting
against the amendment.
9:11:46 PM
CHAIR HUGGINS insisted that this isn't about other companies
that enter into contracts with Keystone; this is about Alaska.
If it is so benign and such a low risk, he asked, why not
formalize it?
9:12:24 PM
SENATOR WAGONER admitted he is not an attorney, but is sure the
other companies he mentioned do have attorneys. For the
legislature to play the part of an attorney and try to indemnify
the state against withdrawn partners by passing an amendment
with so little time to consider it is not something he can
support.
9:13:12 PM
CHAIR HUGGINS stated that if they want to reconvene the meeting
in the morning, they can do that.
9:13:32 PM
SENATOR ELTON said he would prefer the amendment be offered on
the floor two days hence, when they've had time to study it.
9:13:58 PM
SENATOR GREEN said she is trying to figure out if the analogy to
Keystone is even an appropriate one.
9:14:26 PM
SENATOR WAGONER said he was simply making the point that
Keystone's partners would go for deep pockets if they could and
TransCanada has deep pockets.
9:15:01 PM
SENATOR DYSON expressed concern about their process. Senator
Elton suggested dealing with this on the floor in two days, he
said, but if they are going to pass any amendments, they need to
go from second to third and reconsideration on the same day in
order to give a conference committee time to work and for both
bodies to ratify the product of that conference committee.
9:16:45 PM
CHAIR HUGGINS called a brief at ease.
9:17:13 PM
CHAIR HUGGINS called the meeting back to order. He clarified
that they've been talking about this subject for the past couple
of days and his inclination is not to put off until tomorrow
what they can do today. He reminded people that they can repeal
amendments and said he hopes they aren't going to make their
decisions based on how many pages a bill is. As to the amendment
opening the state up to litigation, that's what it is supposed
to avoid.
9:20:17 PM
SENATOR MCGUIRE said she doesn't subscribe to using the process
to manipulate the issue; she has been concerned that much of
what they are relying on has not been reduced to writing.
TransCanada has already said they will not seek to recover any
damages, she said, and if that is the agreement already, there
is no reason not to formalize it in writing.
She withdrew the amendment, but expressed her hope that those
who requested that did so out of a sincere desire to study the
issue, not just to find more reasons not to vote for it.
9:25:26 PM
SENATOR ELTON said he appreciated the discussion and the fact
that Senator McGuire agreed to withdraw the amendment at this
time. An idea that has merit should be addressed carefully and
not in a way that may have unintended repercussions.
9:27:13 PM
SENATOR OLSON asked Chair Huggins if they'd have outside people
give their opinion on what this amendment would do, because they
won't have that opportunity on the floor.
9:28:30 PM
SENATOR MCGUIRE moved to adopt Amendment 2.
CHAIR HUGGINS called an at ease at 9:29:03 PM and called the
meeting back to order at 9:30:52 PM.
25-GH3055\AA.9
Chenoweth/Bullock
AMENDMENT 2
OFFERED IN THE SENATE
TO: HB 3001(efd fld)
Page 1, line 3, following "Act":
Insert "; and providing for an effective date"
Page 1, following line 10:
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:
CONTINGENT EFFECT OF LICENSE APPROVAL. The provisions
of sec. 1 of this Act are contingent on
(1) the written offer of the parties identified
jointly as the licensee in sec. 1 of this Act to the
parties having control of significant North Slope
natural gas reserves that are proposing an alternative
natural gas pipeline project to participate in good
faith negotiations as described in this paragraph,
and, if the offer is accepted, the negotiation in good
faith as described in the paragraph; the negotiations
shall seek to secure common agreement to eliminate
proposals for competing natural gas pipeline projects,
as that phrase is defined in AS 43.90.440, for North
Slope natural gas reserves; it is material to the
state's interest in the negotiations that an agreement
between the parties have the result of foregoing the
need for issuance of a license under AS 43.90,
including the appropriation of licensee reimbursements
as authorized by AS 43.90.110(a)(1); to implement this
paragraph,
(A) negotiations shall be conducted among
(i) the commissioners of revenue and
natural resources or their respective
representatives;
(ii) representatives of the parties
identified jointly as the licensee in sec. 1 of
this Act; and
(iii) representatives of the parties having
control of significant North Slope natural gas
reserves that are proposing an alternative
natural gas pipeline project;
(B) the parties identified in (A) of this
paragraph may
(i) include in the negotiations
representatives of other entities whose presence
may be useful to achieve the outcome described in
this paragraph, as these parties may mutually
agree; and
(ii) agree to conduct the negotiations with
or without use of the services of a mediator, as
the parties may themselves determine; if the
parties agree to use of the services of a
mediator, the mediator shall be a person whose
identity is mutually agreeable to the parties;
and
(C) negotiations undertaken under this section
are not to be considered meetings of a governmental
body of a public entity of the state that are
subject to the requirements of AS 44.62.310 -
44.62.312; and
(2) the passage of a number of days set out in
this paragraph following the condition described in
the corresponding subparagraph; when the condition
described in this paragraph has been met, the
commissioners of natural resources and revenue shall
issue the license; under this paragraph, the
commissioners may not issue the license before the
effective date of sec. 1 of this Act, and
(A) unless subject to the limitation set out
in this subparagraph, shall issue the license not
sooner than 180 days after the date of final
execution of the common agreement among the parties
that is substantially as described in (1) of this
section; however, if, under the terms of that
agreement, the parties consent to forego the need
for issuance of a license under AS 43.90, then,
notwithstanding any other provision of law, the
commissioners may not issue the license; or
(B) shall issue the license not sooner than 45
days after the earlier of the date that
(i) the commissioners advise the governor
that one or more of the parties described in
(1)(A)(iii) of this section have notified them,
or either of them, that the party or parties will
not participate in the negotiations described in
this section; or
(ii) the parties described in (1)(A)(ii)
and (1)(A)(iii) of this section certify to the
governor that they have mutually agreed that
negotiations to secure the common agreement as
described in (1) of this section to eliminate
proposals for competing natural gas pipeline
projects for North Slope natural gas reserves
cannot be obtained.
* Sec. 3. Section 2 of this Act takes effect
immediately under AS 01.10.070(c)."
9:31:35 PM
SENATOR MCGUIRE explained this amendment would delay the
effective date of the license until the commissioners of the
Department of Natural Resources and the Department of Revenue
have attempted to negotiate an agreement between the parties
[the North Slope producers and TransCanada] to eliminate
competing gas pipeline proposals. She warned that if the state
grants an exclusive license and the producers do not bid at open
season, it could be a disaster. This amendment allows for a
"cooling off" period and more communication between the parties.
If they cannot reach an agreement through negotiation, the
license will go into effect; so the same hammer that the
administration has been talking about is still out there.
Then SENATOR MCGUIRE withdrew Amendment 2.
9:35:52 PM
CHAIR HUGGINS asked for final questions or comments on Amendment
2 and for any other amendments.
SENATOR STEDMAN moved to report HB 3001 (efd/fld), from
committee with individual.
SENATOR GREEN objected.
A role call vote was taken. Senators Wielechowski, Olson,
Thomas, Stevens, Elton, Wagoner, Dyson voted yea; Senators
Hoffman, McGuire, Stedman, Green, Huggins voted nay; therefore
HB 3001 (efd/fld) passed from committee.
The committee adjourned at 9:39:24 PM.
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