Legislature(2007 - 2008)BUTROVICH 205
04/13/2007 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
April 13, 2007
1:36 p.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Charlie Huggins, Vice Chair
Senator Bill Wielechowski
Senator Gene Therriault
MEMBERS ABSENT
Senator Lesil McGuire
COMMITTEE CALENDAR
SENATE BILL NO. 104
"An Act relating to the Alaska Gas line Inducement Act;
establishing the Alaska Gas line Inducement Act matching
contribution fund; providing for an Alaska Gas line Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 104
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (S) READ THE FIRST TIME - REFERRALS
03/05/07 (S) RES, JUD, FIN
03/14/07 (S) RES AT 3:30 PM BUTROVICH 205
03/14/07 (S) Heard & Held
03/14/07 (S) MINUTE(RES)
03/16/07 (S) RES AT 3:30 PM BUTROVICH 205
03/16/07 (S) Heard & Held
03/16/07 (S) MINUTE(RES)
03/19/07 (S) RES AT 3:30 PM BUTROVICH 205
03/19/07 (S) Heard & Held
03/19/07 (S) MINUTE(RES)
03/21/07 (S) RES AT 3:30 PM SENATE FINANCE 532
03/21/07 (S) Heard & Held
03/21/07 (S) MINUTE(RES)
03/21/07 (S) RES AT 5:30 PM SENATE FINANCE 532
03/21/07 (S) Heard & Held
03/21/07 (S) MINUTE(RES)
03/22/07 (S) RES AT 4:15 PM FAHRENKAMP 203
03/22/07 (S) Heard & Held
03/22/07 (S) MINUTE(RES)
03/23/07 (S) RES AT 1:30 PM BUTROVICH 205
03/23/07 (S) Heard & Held
03/23/07 (S) MINUTE(RES)
03/24/07 (S) RES AT 1:00 PM SENATE FINANCE 532
03/24/07 (S) Heard & Held
03/24/07 (S) MINUTE(RES)
03/24/07 (S) RES AT 3:00 PM SENATE FINANCE 532
03/24/07 (S) Heard & Held
03/24/07 (S) MINUTE(RES)
03/26/07 (S) RES AT 3:30 PM BUTROVICH 205
03/26/07 (S) Heard & Held
03/26/07 (S) MINUTE(RES)
03/27/07 (S) RES AT 3:00 PM BUTROVICH 205
03/27/07 (S) Heard & Held
03/27/07 (S) MINUTE(RES)
03/28/07 (S) RES AT 3:30 PM BUTROVICH 205
03/28/07 (S) Heard & Held
03/28/07 (S) MINUTE(RES)
03/29/07 (S) RES AT 5:00 PM BUTROVICH 205
03/29/07 (S) Heard & Held
03/29/07 (S) MINUTE(RES)
03/30/07 (S) RES AT 1:30 PM BUTROVICH 205
03/30/07 (S) Heard & Held
03/30/07 (S) MINUTE(RES)
03/31/07 (S) RES AT 12:00 AM BUTROVICH 205
03/31/07 (S) Heard & Held
03/31/07 (S) MINUTE(RES)
04/01/07 (S) RES AT 11:00 AM BUTROVICH 205
04/01/07 (S) Moved CSSB 104(RES) Out of Committee
04/01/07 (S) MINUTE(RES)
04/02/07 (S) RES RPT CS 6AM SAME TITLE
04/02/07 (S) AM: HUGGINS, GREEN, STEVENS, STEDMAN,
WIELECHOWSKI, WAGONER
04/02/07 (S) RES AT 3:30 PM BUTROVICH 205
04/02/07 (S) Moved Out of Committee 4/1/07
04/02/07 (S) MINUTE(RES)
04/04/07 (S) JUD AT 2:45 PM BELTZ 211
04/04/07 (S) Heard & Held
04/04/07 (S) MINUTE(JUD)
04/11/07 (S) JUD AT 1:30 PM BUTROVICH 205
04/11/07 (S) Heard & Held
04/11/07 (S) MINUTE(JUD)
04/11/07 (S) JUD AT 5:30 PM BUTROVICH 205
04/11/07 (S) Heard & Held
04/11/07 (S) MINUTE(JUD)
04/12/07 (S) JUD AT 3:30 PM BUTROVICH 205
04/12/07 (S) Public Testimony 5:30 pm to 7:00 pm
04/13/07 (S) JUD AT 1:30 PM BUTROVICH 205
04/13/07 (S) JUD AT 5:30 PM BUTROVICH 205
WITNESS REGISTER
Tony Palmer, Vice President
Alaska Development
TransCanada
POSITION STATEMENT: Discussed Canadian right of way and First
Nation issues in the context of SB 104
Rob Carpenter, Legal Counsel
Enbridge Inc,
POSITION STATEMENT: Discussed Canadian right of way issues in
the context of SB 104
Ian McFeeley, Vice-President
Gas Development
Enbridge Inc.
POSITION STATEMENT: Discussed Canadian right of way issues in
the context of SB 104
Marcia Davis
Oil, Gas & Mining Section
Department of Law (DOL)
Anchorage, AK
POSITION STATEMENT: Provided information about triple damages
in the context of SB 104
ACTION NARRATIVE
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 1:36:04 PM. Present at the call to
order were Senator Wielechowski, Senator Therriault, and Chair
French. Senator Huggins arrived momentarily.
SB 104-NATURAL GAS PIPELINE PROJECT
1:36:21 PM
CHAIR FRENCH announced the consideration of SB 104 and said that
two topics are on the agenda today. The first is Canadian right
of way and First Nation issues and the second is triple damages.
Because the latter could cost the state billions of dollars, the
committee would focus on that carefully, he said.
1:37:10 PM
TONY PALMER, Vice President of Alaska Development for
TransCanada Corporation gave a slide presentation. He said he
would go through the first half of the slides quickly due to the
fact that they are similar to his testimony to other committees.
Slide 2 - TransCanada Natural Gas Pipeline Network.
· This map of TransCanada's natural gas pipeline system in
North America shows 36,500 miles of wholly-owned pipeline.
About 15 bcf/day of gas is moved every day. The line
leaving Alberta heading to eastern Canada was put in place
about 50 years ago. It was a complex pipeline for the time-
at least as complex as and longer than the Alaska pipeline.
· Although it's depicted as a single line it has been
continuously expanded and looped so there are actually six
parallel pipes running in the same right of way.
Slide 3 - TransCanada's Pipeline Assets.
· TransCanada is North America's largest gas transmission
company. It owns approximately two-thirds of the take-away
capacity from the Alberta hub to North American markets.
· TransCanada owns 36,500 miles of natural gas transmission
pipelines and provides service to Northeast Midwest,
Pacific Northwest, California, Eastern Canada and Western
Canadian markets.
· TransCanada also owns 360 bcf of natural gas storage
capacity.
· One-third of the Alaska Highway Pipeline Project is in the
ground and transporting approximately 3 bcf/day every day
from Western Canada into U.S. markets.(Foothills Prebuild,
Northern Border and GTN loops).
· TransCanada has strong cash flows (C$2.4 billion in 2006)
and growing financial capacity from its pipeline assets.
One year of its cash flow is equivalent to the full equity
component of the expected capital cost of the Canadian
section of the pipeline. Also TransCanada sold $1.7 billion
in new shares when it acquired a large U.S. pipeline system
earlier this year. It also has 7700 MW of power generation
assets (in-service or under development).
· TransCanada has 50 years experience as a
builder/owner/operator of cold-weather North American
regulated pipelines.
1:40:54 PM
SENATOR THERRIAULT referenced the fourth bullet indicating that
about one-third of the Alaska Highway project is in the ground
and said that a lot of people think that the Alaska project is a
new entity. He asked him to touch on the fact that part of the
line is already built and when the last portion was expanded or
put in the ground.
MR. PALMER explained that when the initial Alaska project was
deferred at the end of the 1970s it was determined that there
was a short term availability of surplus Canadian natural gas
and so both governments decided to advance the project by pre-
building the southern sections of the Alaska Highway project.
The initial facilities went in the ground in 1981 and 1982. In
Canada construction took place under the Northern Pipeline Act.
Since that time the facilities have been expanded five times
while meeting the environmental standards of the day each time.
The last expansion occurred in 1998 and currently about 3
bcf/day of gas flows through the systems.
1:42:54 PM
Slide 4 - TransCanada - Proven Basin Developer.
Four maps indicate how the system in Alberta has developed over
the last 50 years. The original 250 mile system serviced three
customers and now it has some 15,000 miles, 300 customers and
1,100 receipt and delivery points. He explained that this was
all developed under an independent pipeline model with rolled in
rates. He surmised that many Alaskans would like to see similar
access to natural gas in Alaska in 50 years.
SENATOR WIELECHOWSKI asked how much of the impressive increase
in development could be attributed to the fact that there were
rolled in rates.
MR. PALMER said two things drove development across the basin.
One was rolled in tolls and the other was a postage stamp toll
within the Province of Alberta so distance didn't matter.
Clearly that was incentive to drive development out of
southeastern Alberta and across the province. Both were
significant and powerful factors, he stated. "Rolled in tolls
allowed customers to know that they would not have a vintaging
of tolls and they would not have a significant difference from
their predecessors on the system nor their successors." Once a
significant base is established as it is today, an increment of
new facilities moves rolled in tolls very little, he said.
1:45:24 PM
Slide 5 - Alaska Highway Pipeline.
The blue line indicates what will be constructed from Prudhoe
Bay to Alberta and the green line indicates the existing pre-
built system that Senator Therriault mentioned.
Slide 6 - TransCanada's Interest.
· TransCanada has been a lead player in the project since its
inception. It has more than $2 billion and 30 years
invested in bringing Alaskan gas to market.
· TransCanada's subsidiary, Foothills, holds valid and
exclusive certificates issued under the Northern Pipeline
Act (NPA) for the Canadian section of the project. The
certificates do not have a sunset or expiry date, which is
highly unusual in Canada. He noted the recent decision by
the National Energy Board with regard to preliminary
results on the Mackenzie Project indicating that a two year
sunset date is likely for the parties to commence
construction or they will lose the license. "This was not
placed on this project because this was a project of
national priority for both the United States government and
for the government of Canada and therefore they went well
beyond normalcy for this project. Not only did they issue a
National Energy Board certificate to us, but they also
passed an act of Parliament called the Northern Pipeline
Act and, of course, there was a treaty signed between the
two countries specifically for this project."
· Foothills is named Canadian Project Sponsor in the
Canada/U.S. Treaty.
· TransCanada has an easement under NPA for the entire route
in the Yukon that was recognized in the 1993 Umbrella Final
Agreement between the Government of Canada, the Government
of the Yukon and all Yukon First Nations.
· TransCanada also holds key land and environmental permits
in Alaska.
SENATOR WIELECHOWSKI asked how long ago TransCanada received
those certificates.
MR. PALMER replied it was in 1978.
SENATOR WIELECHOWSKI, noting that it was 30 years ago,
questioned how certain he could be that the certificates are
still valid.
MR. PALMER again explained that TransCanada constructed the pre-
build with the certificates and it has subsequently constructed
five expansions, the latest of which was in 1998. "We're in a
position to construct the remainder of the project under these
certificates," he said. They aren't musty certificates that have
been sitting unused in a drawer in Ottawa for the last 30 years.
They're used every day.
1:49:07 PM
Slide 7 - Legislative/Regulatory Structure - Competition Held,
and Canadian Project Sponsor Selected.
· The National Energy Board (NEB) held competitive hearings,
open to all parties. There were 214 hearing days before the
NEB.
· Foothills was selected as the Canadian project
sponsor.
· Other applications were rejected (Arctic Gas).
· Canada and the U.S. subsequently negotiated a treaty for
the Alaskan gas project.
· Canada obtained benefits in exchange for access
across Canada for Alaskan gas.
· Foothills was the named sponsor in Canada for the
treaty.
· Canada enacted the Northern Pipeline Act (NPA).
· It enshrined Foothills rights and obligations in
a specific act of Parliament for the pipeline.
· It established a single-window regulator, which
is complementary to the National Energy Board. It
regulates the terms and conditions of service-the
tolls & tariffs, and terms & conditions. The
Northern Pipeline Agency regulates the
construction of the project. In contrast, the
Mackenzie Project has a multiple agency and
longer process.
· Foothills was granted exclusive rights, which is the only
reasonable interpretation.
· Project expedition could not have been achieved
without exclusive rights.
· No commercial party would have invested billions
of dollars without exclusivity.
· No expiry or "sunset" date in Foothills
certificates.
1:50:52 PM
Slide 8 - TransCanada's land status - Alaska.
· TransCanada holds key land and environmental permits.
· TransCanada holds a conditional FERC certificate
that was granted under ANGSA. Under that
legislation a consortium of companies was
granted the certificates. TransCanada and its
subsidiary, Foothills, are the only remaining
partners in that partnership.
· TransCanada holds Clean Water Act wetlands
permits.
· TransCanada holds a federal right of way.
· TransCanada has completed the state right of way
application including the public hearing
process. A final state decision has been pending
for more than two years. TransCanada has openly
stated that it is prepared to vend these assets
to the successful party in Alaska, but there is
one condition. The successful applicant must
connect with TransCanada at the Canadian border.
SENATOR THERRIAULT asked what the stated conditions are on the
conditional FERC certificate.
MR. PALMER said he believes that environmental permits would
need to be updated but he doesn't know the specific terms and
conditions. When ANGPA passed about two and a half years ago
there were allowances for the provisions under ANGSA. If
TransCanada pursues the project within Alaska, it would have the
option to pursue it under either. TransCanada hasn't made that
decision, he said.
1:53:21 PM
Slide 9 - Canadian Section.
This topography map indicates the routing of the project through
Canada. The blue line shows the Alaska Highway, the green line
is the Yukon segment of the pipeline project, and the red line
is the Northern BC section. In the Yukon the route parallels the
highway and in BC it varies a bit.
Slide 10 - TransCanada's land status in Canada.
· Yukon Easement.
· It was received in 1983.
· It was confirmed in 1993 by all Yukon First
Nations in the Umbrella Final Agreement.
· It has a width of 240 meters.
· The easement is a federal right of way.
· The Yukon government has publicly
stated that this can not be replicated.
· Access is already granted.
· The NPA agency holds other reservations by
notation. Those are compressor sites and land
access and access roads. The actual right of way
is in the TransCanada or Foothills name and the
access roads and compressor station sites are
under the Northern Pipeline Agency.
· TransCanada holds a map reserve in BC. Alberta is known as
traditional pipelining territory.
· The map reserve was registered in 1981.
· It's a pipeline corridor that is largely
Provincial Crown land and not on any First Nation
Reserve land.
· The width of the corridor is 1,600
meters.
· There is a clear and identifiable
process to perfect the map reserve
through BC and Alberta lands.
· There's no term or rental fee until the
interest is perfected.
· The map reserve has very few private land
interests.
· The key difference between this and the Mackenzie project
is that TransCanada holds a right of way and has access for
the project today. It's not subject to First Nations title,
which is a significant difference. The parties that are
pursuing the Mackenzie project continue to negotiate with
First Nations on access and benefits agreements. Also they
wouldn't receive a right of way until they completed and
received approval from the NEB for the project. A completed
application for the Mackenzie project was filed in mid 2004
and the hope is that the hearings will be finished this
year. A decision from the NEB is expected sometime in 2008,
which is more than four years after the completed
application was filed. In contrast, TransCanada already
holds an NEB certificate and it holds access with the right
of way. No other party has that.
1:57:06 PM
CHAIR FRENCH asked if it's fair to say that the First Nation
issues are more contested in the Yukon than in BC.
MR. PALMER said if there were a Greenfield project that would be
the case. But if you were to use the existing right and NPA that
TransCanada holds, then that would not be the case. TransCanada
has access through all of the Yukon and they believe they can
get it through BC as well.
CHAIR FRENCH asked if the 1993 Umbrella Final Agreement has been
updated in last 10 years.
MR. PALMER said the 1993 umbrella agreement was to set the terms
and conditions for the final land claims settlements.
Subsequently they've been translated into final lands claims
settlements by the individual First Nations. He noted that six
of the eight right of way First Nations have final land claims
in place today. The terms of the Umbrella Final Agreement and
the specific notations and easements are specifically in those
settlements, he said. The Umbrella Final Agreement isn't
intended to be updated, but those terms will be translated into
each of the final land claims settlements.
SENATOR WIELECHOWSKI asked him what percentage of the project
through Canada already has easements.
MR. PALMER said the project through Canada extends about 1,000
miles from the Alaska/Yukon boarder to Alberta. About half is in
British Columbia and half is in the Yukon. TransCanada has held
an easement for the 500 miles through the Yukon since 1983 and
it's held a map reserve for the 500 miles through British
Columbia since 1981. That means that any party that takes action
along that route understands that there's going to be a pipeline
there. "We have, in our view, access entirely through the Yukon
today and can readily get it for the entire project through
British Columbia so that would be for 100 percent of the project
to Alberta," he stated.
SENATOR WIELECHOWSKI said he assumes that the easements include
construction, access in the remote areas, and access for
repairs.
MR. PALMER said yes, the easement addresses construction,
access, and operating access over the life of the project.
CHAIR FRENCH noted that under tab 13 in the AGIA binder there
are letters to the previous administration from TransCanada.
MR. PALMER continued, skipping slides 11 and 12.
Slides 13 - TransCanada's Benefits to First Nations.
· The benefits of the NPA for First Nations derive from:
· Terms and conditions (obligations which are
attached to Foothills' Certificates of Public
Convenience and Necessity).
· Undertakings from the project hearings.
· Foothills is required to deliver significant benefits and
minimize impacts of the project.
· The benefits are already secured.
· Government of Canada can impose penalties on Foothills
should it fail to comply with the terms and conditions of
the NPA.
Slide 14- TransCanada's Benefits to First Nations.
· NPA benefits for all northern residents:
· Training and employment opportunities for
construction and operations of the pipeline.
· Northern business opportunities.
· Opportunity for equity participation.
· Natural gas supply to communities.
· Beaver Creek, Burwash Landing,
Destruction Bay, Haines Junction,
Whitehorse, Teslin, Upper Liard and
Watson Lake (many are First Nation
communities).
· Foothills has an obligation to provide
specified financial assistance for gas
off-takes.
· Zonal tolls.
· Lower tolls for Whitehorse or Ft.
Nelson versus Alberta deliveries.
2:02:43 PM
Slide 15 - TransCanada's Benefits to First Nations.
· NPA specific benefits for First Nations:
· Fair and competitive opportunity to participate
in the supply of goods and services.
· Representation on the board of directors for
Foothills South Yukon.
· 3 of 11 directors for First Nations are
women.
· Foothills must enhance First Nations
participation in project employment, training,
and entrepreneurial opportunities through
detailed social-economic plans.
· Terms and conditions require Foothills to
establish and maintain a consultation process
with First Nations.
· Terms and conditions or undertakings from the
hearings establish protection for biophysical,
socio-cultural, and socio-economic environment of
the communities and traditional lands.
· The Umbrella Final Agreement and Yukon First Nation Final
Agreements acknowledge and respect the validity of
Foothills' pipeline easement.
· Setting aside new lands for a Greenfield project
would be a difficult and slow process.
2:03:04 PM
Slide 16 - Summary.
· TransCanada holds critical assets for the project in Alaska
and Canada.
· Alaska.
· Conditional FERC certificate.
· Clean water permits and federal right
of way.
· Pending state right of way.
· Canada.
· TransCanada holds a certificate from
the NEB and the NPA to construct this
facility. There is a specific piece of
legislation for this pipeline that is
exclusive to Foothills.
· A Canada/U.S. treaty establishes how
property taxes and other things will be
established in Canada for this project.
· There is a single-window regulatory
agency.
· TransCanada holds a right of way
through the Yukon.
· There are specific benefits for First
Nations and extensive history of
consultation.
2:04:21 PM
SENATOR WIELECHOWSKI noted that an AGIA provision calls for
maximizing Alaska hire and asked if TransCanada would commit to
that.
MR. PALMER said "TransCanada will be fully committed to see that
Alaskans have the full advantageous opportunity to construct the
Alaska section of the project." However, there are specific
provisions for Canadian labor to have certain opportunities
within Canada. That's fair just as Alaskans will insist on
Alaska hire within Alaska, he stated.
CHAIR FRENCH asked him to amplify the comment he made previously
about the prospect of a pipeline without customers.
2:06:11 PM
MR. PALMER clarified that he said that the initial open season
is a critical threshold for the project and the project must
obtain customers and/or credit to be able to advance and
complete the project. He relayed that he also said that
TransCanada will do all it can to ensure that the initial open
season is successful. It will do the necessary engineering to
put forward credible tolls so that potential customers could
make a decision. If the volumes advanced in the initial open
season are insufficient to proceed, TransCanada doesn't intend
down-tool and go home, he said. TransCanada would continue to
pursue additional customers to attract project financing and
they would also pursue alternative credit mechanisms if
available. Several weeks ago you did hear that our preference is
not to seek FERC certification, he said. But we also clearly
stated that we would continue to seek the necessary customers
and credit to make this a viable project that's put in service
as expeditiously as possible.
2:08:16 PM
CHAIR FRENCH thanked Mr. Palmer and stated that Mr. Carpenter
with Enbridge is next on the agenda.
2:08:28 PM
ROB CARPENTER, Legal Counsel for Enbridge Inc., introduced
himself and Ian McFeeley, Vice-President of Gas Development. He
relayed that he would focus on Canadian right of way (ROW)
issues from the perspective of approaching the project under the
Northern Pipeline Act (NPA) or the National Energy Board (NEB)
process. We don't believe the difference is quite as great as
Mr. Palmer would suggest, he said. Both processes will require
about the same level of ROW acquisition because both processes
would start from the same point in British Columbia and Alberta.
Although he acknowledges that TransCanada holds map notations,
those don't grant property and interests so it's difficult to
see them as anything more than a notation to a future developer
that TransCanada may have an interest in the area.
MR. CARPENTER said that TransCanada does have an easement
agreement in the Yukon that was granted by the federal
government, but before construction can take place the Minister
must give written consent, which makes it somewhat unique. In
his view it's difficult to believe that the Minister would give
permission to construct the pipeline unless the various
requirements in the NPA have been satisfied. That includes
obtaining all necessary regulatory permits for land use, water
use, fisheries authorizations, navigable waters authorizations,
timber cutting in British Columbia, the Yukon, and Alberta.
Enbridge believes that many of those permits would trigger
environmental reviews and other assessments. In the end there
isn't much difference in terms of ROW acquisition between an NPA
process and an NEB process, he stated.
2:13:02 PM
VICE-CHAIR HUGGINS asked if he sees any marketable value to what
TransCanada has in terms of rights of way.
MR. CARPENTER said not a great deal, but there's probably more
value in the Yukon. TransCanada has what's called the first
right of way, which allows investigations, but it doesn't allow
digging and putting pipe in the ground. In his view that second
step would require regulatory permits before the Minister would
give written consent to construct.
VICE-CHAIR HUGGINS asked him to give his perspective on First
Nation provisions in the Yukon with respect to TransCanada.
MR. CARPENTER said the issues in the Yukon and British Columbia
are much the same and he has no doubt that TransCanada is
currently having discussions with First Nations. However, the
real issue is that aboriginal law has changed substantially in
the last 30 years. For example, Canada passed a charter of
rights in 1982 that guarantee aboriginal treaty rights and
developers must consult with First Nations on a comprehensive
level that wasn't contemplated in the Northern Pipeline Act. In
contrast, pipelines have been built through the NEB process
using modern aboriginal consultations and that process is better
understood. He opined that the NPA is unique legislation, which
leaves it more open to challenge.
2:16:49 PM
MR. CARPENTER said in summary he believes there are significant
challenges for the NPA. In addition to the aboriginal
challenges, environmental challenges will arise because of the
regulatory approvals that are required under the Northern
Pipeline Act. In his view there will be much greater opportunity
for environmental groups and others to challenge the project if
that process is used. In fact, if he were advocating for a group
that didn't support building the pipeline, he would want things
to proceed under the NPA rather than the NEB process.
CHAIR FRENCH asked Mr. Carpenter to send his written comments to
his office and he'd distribute copies to the other members.
SENATOR THERRIAULT asked if the Mackenzie gas pipeline is using
the NEB process.
MR. CARPENTER yes, but it would be exactly the same for this
project. "We would expect that there would be a much easier
process that could be incorporated for the Canadian portion of
the Alaskan pipeline."
SENATOR THERRIAULT commented that one would hope so because that
process has been neither fast nor sure.
2:19:45 PM
CHAIR FRENCH announced the next topic to be triple damages,
which is Section 43.90.540. He asked Ms. Davis to explain how
she sees the provision working.
MARCIA DAVIS, Deputy Commissioner, Department of Revenue,
explained that the purpose of Section 43.90.540, entitled
"Licensed project assurances." is to seal the commitment by the
state to the successful applicant, to receive the inducements
and build the AGIA pipeline. The reason for having the provision
relates to ensuring that the field of applicants that comes
forward will be as broad as possible. Also it will measure the
AGIA process as one that is fair and open and not subject to
gaming. A concern that various participants have expressed is
that just like last time some of the independents would feel
that they would be put forward as a Stalking Horse but that
ultimately they wouldn't be selected. The reason would be that
only a pipeline project that's backed by the producers would be
a sure thing. She said other provisions in AGIA leveled the
playing field, but the independents continued to express concern
that if an independent was picked the producers would still be
in a position to withhold gas at an open season or perhaps cause
the independent to fail. Then the state could say "look there it
failed" and support a different project by someone who had
perhaps sandbagged the AGIA process. It's possible that the
state could then see logic in backing a project that's outside
the AGIA process. Meanwhile, the genuine applicant that stepped
forward in the AGIA process and forked out millions and millions
of dollars is left abused and bruised and without much recourse.
MS. DAVIS relayed that this provision shows the state's intent
to play fair. It says that if the state decides to change to a
different project or approach, the licensee that is following
all the rules and adhering to their license and moving toward a
FERC application would receive a benefit so it wouldn't be
unduly harmed. "So we came up with a three hundred percent times
the costs ponied up by that applicant." The focus is to protect
the applicant. Imposing a hurtle ensures that the state
carefully thinks through any decision to change projects.
MS. DAVIS said that the provision is designed to be carefully
scripted in terms of scope and timing. The period of time over
which the assurance is provided is from the time that the
license is issued until that project commences operation. The
scope of protection is that the state won't offer preferential
monetary, tax, or royalty treatment. She emphasized that the
word "preferential" is key because there is no intent to
restrict the legislature's ability to look at taxes. If a future
legislature decides to modify production taxes, nothing in the
bill prohibits the legislature from changing tax rates. What it
does do in the section that deals with tax exemption is to
provide an exemption that puts the resource owner that has
dedicated gas, in an equal economic position.
CHAIR FRENCH described it as making them whole.
MS. DAVIS said yes, but it doesn't take away the ability of the
legislature to modify taxes. Even so she's heard from some
sectors in the industry that this section would prohibit the
legislature from changing the tax rate in an effort to influence
a pipeline project. She disagrees with that interpretation. That
isn't a preferential gas change; everybody's affected by it, she
said. What it does do is prevent the state from throwing money
at a specific project. It prevents the state from singling out a
specific project and giving it preferential tax or royalty
treatment.
2:25:40 p.m.
MS. DAVIS explained that in the current committee substitute
(CS) the remedy is identified as the reasonable costs that have
been incurred by the licensee as of the date that the state does
the bad deed and backs a different project. Once it's activated,
if the state does pay the penalty, it will at a minimum receive
all the project data. "So we're not getting absolutely nothing
for that money," she said. Also, the current CS added a
clarifier, that the intent in terms of defining competing
projects clearly states that it doesn't include projects that
were designed for instate gas delivery. Essentially that would
be any pipeline projects that are less than 500 mcf/day. The
intent is to not loop in the bullet gas line or spur line from
the main line.
MS. DAVIS suggested the committee look at the language from the
House oil & gas CS and consider whether it might be a fruitful
change. It clarifies that the costs the licensee could be
reimbursed for meet the definition of qualified expenditures. It
makes it clear that they would not be reimbursed for overhead,
litigation costs, criminal penalties or fines, or civil
penalties or fines. A second area that merits further
consideration is preferential royalty and tax treatment. The
idea, she said, is to not include in the bucket of preferential
tax and royalty, those situations where the state is currently
exercising its contractual rights and its interpretation of
state law rights. For example when there's a dispute with a
lessee about how they've paid their royalty, DNR enters into a
dispute resolution. Oftentimes there's a court or other type
settlement that resolves the dispute. We don't want that type of
settlement to be considered a preferential tax or royalty
treatment, she said. The state is simply enforcing its existing
rights under statute and its royalty provisions in its
contracts.
MS. DAVIS highlighted other areas that clearly should be
excluded. She explained that by statute DNR is authorized to
look at leases and agree to modify the royalty rate for leases
that have been unitized. In those situations DNR can essentially
average the royalty rates within a unit for ease of
administration. Another area in statute allows DNR to negotiate
a more favorable royalty rate when a lessee can show by clear
and convincing evidence that development in a particular field
is challenged. Also, in end of field life situations DNR has
latitude to ensure continued production from the field by
modifying royalty provisions. Those are existing statutes that
apply under specific conditions; their focus isn't to support a
specific competing gas pipeline.
2:30:25 PM
CHAIR FRENCH asked for a worst case scenario estimate of how
much money is at stake with this promise.
MS. DAVIS said different industry participants have indicated
that the cost to get to an open season has ranged between 10s of
millions of dollars up to 400 million dollars. It'd take about
half of that or 25 to 200 million dollars for the licensee to
get to an open season. After open season incremental amounts
would be added to that. If the state's share is larger the net
to the licensee would be lower so the exposure post open season
would probably be a lot lower, she said.
CHAIR FRENCH observed that if the licensee spends 200 million
dollars before the state jumps ship the state could be on the
hook for 600 million dollars.
MS. DAVIS pointed out that the administration has acknowledged
that if the state is making the decision to change to another
project it's because it has identified another project that is
superior and would provide greater value to the state. Certainly
the cost of this provision would have to be factored into the
economics of whether or not the state views another project as
being more beneficial. "I would not underestimate the ability
of…the state and the other commercial players to ensure that
this price is not disparately impacting the state in that
decision," she stated.
CHAIR FRENCH added that in making the decision the state would
ask whether the other project plus $600 million is worth it
overall.
SENATOR WIELECHOWSKI asked if she would object to lowering it to
double damages.
MS. DAVIS replied the question is whether there really is a
magic number and she couldn't say. "We were just wanting to
ensure that the applicants in the AGIA process had enough
confidence and security that the state would not willy-nilly
change ships." We have confidence in the commercial market that
if another project comes along, that figure isn't going to be
the deciding factor in judging whether it's vastly superior.
Also we don't want the applicants to think that the state is
looking for an out.
SENATOR WIELECHOWSKI pointed out that if the state makes a
mistake or an applicant is dragging its feet the state should
have the option to jump ship .
MS. DAVIS said if we've made a mistake we'd hope that it's
because the applicant isn't adhering to the license
requirements. That, she said, is one of the benefits of having
clear guidelines and benchmarks so if an applicant doesn't meet
them this provision would not come into play. "This provision is
actually qualified in that to receive this the applicant must be
in compliance with the other provisions of its license," she
stated.
CHAIR FRENCH asked if she would consider what Senator
Wielechowski is talking about to be more an abandonment action.
MS. DAVIS said no, it'd be more a situation where the selected
applicant is wrong because they aren't measuring up.
CHAIR FRENCH asked what process AGIA uses to end the license.
MS. DAVIS explained that if an applicant isn't in compliance
with the license requirements, there's a provision for a 90 day
period for the commissioners to attempt to resolve the failures
to perform. If they aren't resolved, the commissioners have the
authority to revoke the license and impose the various sanctions
that are included in that section. Although she appreciates that
Senator Wielechowski is thinking about situations that aren't as
egregious as a license violation, she believes that would be a
very narrow situation for the state to face. As to whether 200
percent or 300 percent is the right remedy, she said that is
within the purview of this body to make that balanced decision.
2:36:05 PM
SENATOR HUGGINS referenced page 22, line 11, and asked if
"monetary treatment" had been defined.
MS. DAVIS explained it was designed to reflect outright grants
similar to the $500 million matching grant that's incorporated
in AGIA. The intention is for it to be something that would be a
preferential monetary benefit to a competing pipeline project.
SENATOR HUGGINS asked if hiring a separate pipeline coordinator
would be exclusionary.
MS. DAVIS said when this was written there was no intent to
include that type of support in this provision. The idea was
more for outright unfettered financial grants.
SENATOR HUGGINS said he recalls the federal pipeline coordinator
says "any project" and this one says "the project." He wonders
if there's any wisdom to widening the parameters so this
pipeline coordinator could potentially handle more than one
project.
MS. DAVIS said by design the bill does everything it can to
enhance and make the AGIA process attractive. In that effort the
administration saw value in having a state pipeline coordinator
and these explicit provisions regarding agency permitting
acceleration and expediting. The administration continues to
believe that is a valuable benefit associated with the AGIA
licensing process. She noted that industry has expressed
objection saying that the state as a sovereign should want to
support alternate pathways for a gas pipeline. What has been
identified, she said, is that DNR currently has statutory
authority for large projects to facilitate both agency decisions
within DNR as well as other agencies that interface with those
projects. The question that remains is whether that is an
adequate opportunity for the state as a sovereign to support
alternate projects, or if it's more important to make this
pipeline coordinator available across the board. The
administration continues to believe the pipeline coordinator to
be important as support for an AGIA license project, she stated.
SENATOR HUGGINS commented that he's had unofficial feedback that
FERC may have difficulty with the two words being different.
MS. DAVIS acknowledged the remark.
SENATOR WIELECHOWSKI suggested a solution might be to add
language to line 10 or line 11 saying that the state extends to
another person preferential royalty tax or monetary treatment
except as provided by law. Then he noted that the treble damages
don't kick in unless it's before commencement of commercial
operation of the project. He asked what that definition is and
when that would occur.
MS. DAVIS said there is a definition in the current CS. She read
the following from page 23, lines 24-25:
"commencement of commercial operations" means the
first flow of gas in the project that generates
revenue to the owners;
SENATOR THERRIAULT questioned whether receiving, processing, and
granting a right of way would be preferential treatment if the
state had an application for a second right of way.
MS. DAVIS said no; it wouldn't be preferential royalty tax or
monetary treatment.
2:42:27 PM
CHAIR FRENCH referenced the language "the inducement provided in
this chapter" on line 8 and questioned the use of the singular
noun since there are several inducements.
MS. DAVIS explained that the inducement that's referenced is the
enjoyment of an inducement by a pipeline company and the
administration thinks of that as the matching contribution. The
inducement to resource owners is the royalty and tax. It
wouldn't be a problem to have the "s" since there is an indirect
benefit to the pipeline company by having resource owners
induced to participate, she stated. However, she added, we do
tend to think more directly about the pipeline inducement.
CHAIR FRENCH commented that with a producer owned pipeline it
might be an issue.
MS. DAVIS said yes.
CHAIR FRENCH referenced a competing natural gas pipeline project
accommodating throughput of more than 500 mcf/day, and asked if
she would object to the following language: "The delivery of
more than 500 mcf/day to a market." He said he was thinking
about a gas treatment plant or a reinjection facility that
cycles a lot of gas. The idea is to address the fact that the
facility would be accommodating throughput of 500 mcf/gas/day,
but it wouldn't be going anywhere.
MS. DAVIS agreed to think about that. She wants to make sure it
doesn't harm anyone because the gas isn't going anywhere.
CHAIR FRENCH said the bill is structured to make the licensee be
reasonable and that's good because they would have their eye on
that $600 million prize.
MS. DAVIS said in that case you wouldn't necessarily limit it to
500 mcf/day because gas cycling that's directed at enhanced oil
recovery or something like that you wouldn't necessarily need
the volume limitation.
CHAIR FRENCH stated that he'd like to get "market" inserted to
make it clear that it's a pipeline carrying gas to market.
MS. DAVIS said she understands.
CHAIR FRENCH asked if the preferential treatment claims would be
argued in court.
MS. DAVIS said she envisions that a majority of the time there
would be a debate or dispute, but she can also envision the
state analytically and consciously looking at a situation,
making a decision, and negotiating a resolution of the issue
without going to court.
CHAIR FRENCH said she's probably right; he can see the state
making an economic decision to change projects. But you're still
asking the legislature to spend money on a decision without even
knowing in what year it might occur. He referenced Article 9,
Section 13 of the constitution, which says the state can't spend
money without an appropriation so the legislature has to grant
the authority. Typically, he said there's the implicit idea that
all these promises to pay are subject to appropriation. He asked
if there would be any objection to inserting the qualifier.
MS. DAVIS agreed to take that under consideration.
2:46:51 PM
CHAIR FRENCH said when Senator Huggins brought up monetary
treatment he began to think about fairly small monetary gifts to
another entity that certainly wouldn't result in a pipeline but
nonetheless is a monetary encouragement. Say the state gives $1
million to a competing project and because of that it's on the
hook for up to $600 million. Although he can see it from the
licensee's perspective, he questions whether there shouldn't be
some materiality or balance.
MS. DAVIS said you have to balance it out. Anything the state
does to pull away from its commitment lessens the value of that
commitment. But in terms of identifying materiality you'd need
to think of the type of monetary commitment the state might
make. For example if there is a science program that's looking
at the development of gas in the Arctic, arguably it's not
supporting a competing gas line so there'd be debate on that
threshold rather than the monetary level. But if there really is
a specific competing gas pipeline project, a materiality
threshold might not cut it, she said. You're either supporting
another line or you're not. If we did that it might
substantially weaken the value of the assurance, she said.
2:48:52 PM
CHAIR FRENCH said when MidAmerican testified they repeatedly
talked about economic certainty. I take it they were referring
to this provision of AGIA and not the tax freeze and royalty
provisions, he said. This is what an independent pipeline
operator is looking to for surety.
MS. DAVIS said absolutely; this provision gives them confidence
that there's investment stability.
SENATOR THERRIAULT asked if this would preclude consideration of
a blending of competing proposals A and B if the successful
applicant, A, found it was not advancing on its own.
MS. DAVIS said it wouldn't preclude it but that does bring in
the value of the assignment clause. We anticipate that an
applicant will arrive with a disclosed number of commercial
participants, she said. Then in the timeframe between selection
of the successful applicant and the filing of the FERC
application there will be lots of negotiations and commercial
evaluations where new partners may come into play. During that
time a transition of the license from one legal entity to a new
joint venture would not be unexpected, she stated. With respect
to the instance he described, she envisions that commercial
result arising by a combining of commercial entities behind the
project and that would result as an assignment of the license to
that entity.
CHAIR FRENCH asked if the administration crafted the provision
or if it came from a model.
MS. DAVIS said it was specifically designed to address the
explicit concerns related to the AGIA concept. The idea was to
develop elements that would make it work smoothly, she stated.
SENATOR THERRIAULT asked if the resources CS made changes to
this provision that the administration objected to.
MS. DAVIS said no.
CHAIR FRENCH asked if all the changes were made with
consultation with the administration.
MS. DAVIS said yes.
SENATOR THERRIAULT recapped that she spoke about considering
language that House oil and gas included, and she spoke about
royalty or tax settlements not being considered preferential
treatment. He added that there were several other things he
didn't write down.
MS. DAVIS said in terms of preferential royalty and tax
language, the administration wants to make sure that there's
coverage for the royalty and tax settlement authority that the
state currently has. Also the existing DNR statutes that give
rise to the right to negotiate royalty modifications need
coverage.
CHAIR FRENCH asked if she has draft language on that.
MS. DAVIS said not at the moment but it will be forthcoming.
CHAIR FRENCH clarified that the idea is to carve out existing
means for settling disputes.
MS. DAVIS said yes, the idea is that those would not be
considered preferential support for another pipeline.
2:53:59 PM
CHAIR FRENCH recessed the meeting until till 5:30.
| Document Name | Date/Time | Subjects |
|---|