HB 120-DEPT OF LAW: ADVOCACY BEFORE FERC  1:19:14 PM CHAIR CLAMAN announced that the first order of business would be HOUSE BILL NO. 120, "An Act relating to the Department of Law public advocacy function to participate in matters that come before the Federal Energy Regulatory Commission." 1:19:41 PM CLYDE "ED" SNIFFEN, Chief Statewide Section Supervisor, Regulatory Affairs & Public Advocacy (RAPA), Department of Law (DOL), explained that HB 120 is a fairly simple bill in that it allows the Department of Law (DOL) to include some of the work it currently performs before the Federal Energy Regulatory Commission as part of the budget, and seeks to use regulatory cost charge funds. He explained that all regulated utilities in the state are subject to oversight by the Regulatory Commission of Alaska (RCA) and to pay for that regulatory oversight, there is a regulatory cost charge that appears on utility bills. He described it as a small amount that goes into this fund, and that fund pays for the cost of regulation for pipelines and regulated utilities. The attorney general has the function of protecting the public interest in these matters before the RCA. The Department of Law (DOL) appears in matters before the RCA to protect the public from unnecessary rate hikes and protects the public's interest in making sure those rates are just and reasonable, which is paid for through this regulatory cost charge. Recently, he explained, the department found that many matters are before the Federal Energy Regulatory Commission (FERC), and as the department works to limit its use of outside counsel, it spends a lot of time on FERC matters now. The department would like to charge some of that work toward the regulatory cost charge and, he pointed out, the statute recognizes that through the pipeline regulatory cost charge that that is entirely appropriate. MR. SNIFFEN noted that the total amount of the regulatory cost charge is capped, which is set by the legislature, and it is a certain amount of adjusted gross revenues from the utilities, and the department gets to use .17 percent of that. He explained that the department sets a budget every year within that cap on how it believes it will spend its money. This bill, he explained, would allow the department the flexibility to allocate its funds among pipeline and utility matters in a more efficient way and; therefore, utilize its budget more efficiently. Those are funds that would normally be charged to the general fund that DOL could now charge through an appropriate use of the regulatory cost charge. He referred to the handout he provided and said it explains the bill, and he would be happy to answer any questions. 1:22:51 PM REPRESENTATIVE EASTMAN acknowledged that he is not familiar with how the functions of the attorney general's office were established in the statutes, and asked why the legislature needs to create a statutory provision to permit the attorney general's office to do something that the attorney general has deemed is in the public's interest. MR. SNIFFEN responded that he believes Representative Eastman's question was in reference to these public interest functions the attorney general pursues in statute versus not being an inherent power of the attorney general. He said he was unsure he could answer the statutory history, but the attorney general is charged with enforcing certain public interest functions of the state. For example, the consumer protection functions are things the attorney general does just to protect the public's interest, and the function through the Regulatory Affairs & Public Advocacy Section is another one of those. He commented that perhaps without those directions it would be more difficult in this rapid context, for example, to get funding for that function. The way the attorney general's authority is laid out, those are the things she's been charged with doing and why there are not others in there, he could not speak to that question. 1:24:27 PM REPRESENTATIVE EASTMAN offered a scenario that the Department of Environmental Conservation (DEC) was going through its process, and he asked whether something is needed in statute to give the attorney general the opportunity to participate in a public advocacy role. MR. SNIFFEN answered that it depends upon the role of the attorney general. He explained that the attorney general is charged with representing the agency that would enforce the state's environment protection laws, so the Department of Environmental Conservation (DEC), for example, is a client of the attorney general. The attorney general will provide legal advice to that agency to the extent that the agency is pursuing whatever remedies for whatever case it is pursuing, he advised. 1:25:17 PM REPRESENTATIVE KOPP said that, clearly, the department is in a predicament with its advocacy role, and the way the law is structured now it makes it difficult for any costs recovery. This bill resolves that, and he described it as a good piece of legislation. 1:25:44 PM REPRESENTATIVE REINBOLD referred to the fees people pay on their utilities bills, and asked whether those are the fees that would be used by the attorney general to go before FERC. MR. SNIFFEN offered a qualified yes. He explained that it is a complicated process in that DOL establishes a budget each year that goes before the RCA, and that budget is limited by the legislature. The RCA approves that budget, and depending on what sectors received DOL's attention throughout the year, for example, if DOL had a year that was heavily weighted toward gas regulation versus electric or waste water, then a bigger portion of the regulatory cost charge would be assessed for the gas utilities, and vice versa. He advised that it is a process that equalizes among the sectors fairly, and then that gets passed on to the utilities, and the utilities can pass it on to their rate payers if they so choose. The rate payers see that small line item bill at the bottom of their utility bill, $0.17, or whatever, for the regulatory cost charge, he explained. 1:27:10 PM REPRESENTATIVE REINBOLD surmised that the people pay through their utility bills for the attorney general to perform work before the federal government, which is another way to increase the size of government. She asked "Why now," and whether this has anything to do with the gas line, LNG project. She explained that stories hit the news where the governor just asked the current national administration for "a whole bunch of help and loopholes for the state government to get out of doing things that the private sector ought to do." MR. SNIFFEN replied absolutely not. He stressed that this will not affect the governor's gas line at all. The issue came to DOL's attention now, because over the last couple of years it was tasked with finding ways to save money, and one of those ways was to reduce the department's reliance on outside counsel. The FERC work has been performed by outside counsel for 30 years, and the department is now bringing that work in house, thereby, saving significant amounts of money for the state. It recently came to the department's attention that it was unable to pass some of those costs on to the shippers and the customers who are benefiting from the department's work. The FERC piece is one piece the department saw where it performed work that benefited the public's interest, and it could be properly included within the pipeline regulatory cost charge. He estimated that the people who would probably absorb most of this, if anything, would be the shippers of oil on the pipeline, and not to the normal utility customers. He said he suspected that the regulatory cost charge for a person's water bill or electric bill would not be affected at all. 1:29:09 PM CHAIR CLAMAN referred to Representative Reinbold's question regarding charging the consumers, and responded that the legislature made the decision many years ago for utility bills to be part of the consumer protection function. The public would want the attorney general's office involved in rate paying cases, and the legislature determined that the attorney general could participate, but could only charge .17 percent in terms of paying the attorney general to perform that consumer protection function. This bill is not actually adding new collection authority, he explained, it is more about allowing the attorney general's office to have more flexibility in what it can do with the .17 percent it is already collecting. MR. SNIFFEN replied that that is absolutely correct. 1:30:05 PM REPRESENTATIVE REINBOLD asked whether this has anything to do with the current gas pipeline, and reiterated "why now." She acknowledged that Mr. Sniffen explained it was to save money, but that she finds this intriguing timing. She asked whether this will impact any private businesses, the budget, or the rate payers. MR. SNIFFEN reiterated that the answer to "why now" is in an effort to reduce its reliance on outside counsel and bring some of the FERC work in house due to budget considerations. He further reiterated that, as to the timing issue, it recently came to the department's attention that the department is unable to use this fund to pay for some of the FERC work that would otherwise be before the RCA, but for the need to do it at FERC first. In response to whether it has anything to do with the governor's new pipeline, he reiterated that it does not. REPRESENTATIVE REINBOLD said she asked who would be impacted now, such as any business in Alaska, or any rate payer. 1:31:56 PM MR. SNIFFEN reiterated that the people who pay into the regulatory cost charge are all of the regulated utilities and pipelines. The work on FERC would be a pipeline related issue, so the people impacted by this would be shippers on the pipeline and they would have to pay the regulatory cost charge if there was an increase. REPRESENTATIVE REINBOLD asked who the shippers are on the Trans- Alaska Pipeline System (TAPS), and who it will impact. MR. SNIFFEN answered that the shippers on TAPS include all of the major producers, shippers, and also intrastate shippers on the pipeline which includes the Tesoro Corporation and Petro Star Inc., because they pay intrastate tariffs to receive product off of the pipeline as well. 1:32:56 PM REPRESENTATIVE REINBOLD asked what kind of impact it will have because it sounds like the attorney general will now "do a bunch of work," maybe before the FERC Regulatory Commission. She asked what kind of expenses would be incurred, and what the state would ask the private sector to pay in this recession. MR. SNIFFEN responded that it is hard to say, but it will not be an amount that is very noticeable. Depending each year on how the department's budgets fall out, if it allocates a certain percentage of its time toward this FERC work, that cost will be passed on to the shippers, they will pass it on through their tariffs, and those tariffs are spread out over millions of barrels of product. The customers who buy that product would ultimately pay that price which, he opined, would be a small amount. 1:34:02 PM REPRESENTATIVE REINBOLD said this impacts the private sector and she requested the name of every shipper this economically impacts because they have investments over a long period of time, and this is another way to get into another pocket of theirs. It is important to understand the impact to the private sector before passing legislation, she said. 1:34:56 PM CHAIR CLAMAN queried as to whether she was asking Mr. Sniffen to provide the name of any customer, not just for the Trans-Alaska Pipeline System (TAPS), but any customer of any type that could be impacted by this particular bill allowing the department to participate in FERC matters. REPRESENTATIVE REINBOLD clarified that she is asking for the information regarding this bill particularly, and who will be impacted directly. CHAIR CLAMAN noted that there is TAPS, within which contains some intrastate and interstate regulations, and the intrastate is regulated by RCA, which is Tessoro and others that refine oil in the state who take the oil off the pipe. Everything, he explained, that goes out is regulated by the Federal Energy Regulatory Commission (FERC). He then asked for clarification whether she is just asking about people involved in the TAPS, or asking about any utility bill or anything else that might come before FERC. 1:36:02 PM REPRESENTATIVE REINBOLD explained that she is asking for anyone who would be impacted by this bill overall so they could prepare, she said to look at the intended and unintended consequences of HB 120. MR. SNIFFEN explained that the regulatory cost charge for pipelines is assessed on all pipelines operating in the state, and he will provide the list of the pipeline operators. REPRESENTATIVE REINBOLD said that was not exactly what she was asking. CHAIR CLAMAN pointed out that that was the question he was asking because when one asks the impact of a .17 percent regulatory cost charge, he related that it impacts everyone. For example, he said, Chugach Electric also has the .17 percent factored in; therefore, not only does the utility pay it, but the utility passes it on to the consumer, which means there is a component in which everyone is affected. He said he is trying to get some clarity as to who she wants Mr. Sniffen to provide information for because the universe could be everyone in Alaska, or a small number of people who own TAPS. He said that, frankly, he is confused by the question himself, and it appears Representative Reinbold is not happy with Mr. Sniffen's answers. 1:37:54 PM REPRESENTATIVE REINBOLD clarified that Mr. Sniffen can do it in aggregate, but if a municipality or consumers, or if only the shippers of TAPS are impacted, she would like to know in the short term and the long term. Alaska is in a recession with massive deficits and Alaska's economy is delicate, and sometimes a tiny change can have a huge impact, she said. MR. SHIFFEN said he understands Representative Reinbold's question and that the impacts would be only to the pipeline operators in Alaska, it will not be passed to the municipalities, or to the RCC contributors. The department's FERC work deals with tariffs on the TAPS pipeline, and the people who pay those tariffs are the people who will be impacted. Currently, he reiterated, the intrastate tariffs paid in the state are only by two companies, Tessoro and Petro Star. 1:39:14 PM REPRESENTATIVE LEDOUX referred to Mr. Shiffen's testimony wherein only the tariff payers will be impacted by the FERC portion of this, and noted that all of the expenses get split with everyone. MR. SNIFFEN explained that the department estimates how much of its time will be spent on pipeline matters, and how much time will be spent on utility matters. Within those different sectors it breaks it down even further on how much time is between the different types of utilities. The amount of money the pipeline shippers would pay into the regulatory cost charge is what might be affected by the department's decision to perform more FERC work versus other utility work, he explained. 1:40:17 PM REPRESENTATIVE KOPP voiced his understanding that the state has year-to-year appropriations for FERC work to the Department of Law (DOL), and those have to be appropriated each year. Therefore, he said, the legislature would have the authority to not make appropriations if it so desired. MR. SNIFFEN responded that that is not quite correct, the legislature can make appropriations to the department, and the department does use general fund money for its FERC work, currently. 1:40:55 PM REPRESENTATIVE KOPP asked whether there is a projection as to the cost impacts the legislature can expect from the department's work, not being paid now but going forward as a result of this legislation. MR. SNIFFEN answered that he did not think the total amount the department would spend, in addition to what it already spends, as a result of this bill would change that much. The department is operating under the cap set by the legislature already, and it is pretty close to that cap with its current budgets. There are some not used, which is carried forward to the next year, and if the department is able to put some of its FERC work into that pot of money, it may fill it up a little more. He said it is difficult to predict, but it will be in the hundreds of thousands of dollars or less, it certainly is not into the several hundred thousand or even the million range. The department set its budget where it is, and if it uses that budget performing utility work, great - and if it isn't used, then it goes into the next year's cycle, he said. In the event the department is able to use some FERC work and put it into that pot of money as well, then the department might use a little more of that. Therefore, it would be less money rolling over to the next year depending on where the work was concentrated, but it is not a huge amount of money, he explained. 1:43:07 PM REPRESENTATIVE KOPP offered that his understanding of the bill was that it wasn't so much generating new revenue as it was the department having access to receipts that are currently collected, in a manner that is currently unavailable to department when it advocates for FERC matters. MR. SNIFFEN answered that Representative Kopp was correct. 1:43:32 PM REPRESENTATIVE KREISS-TOMKINS asked the exact relationship between the 0.7 percent statutory cap on RCC regulatory cost charge, and the relationship between that 0.7 and the .17 percent that can go to the Department of Law (DOL), and where it goes, he asked. 1:44:16 PM MR. SNIFFEN responded that there is a statutory 0.7 percent cap and a .17 percent cap. The 0.7 percent is what is used by the regulatory commission to fund its operations, and the .17 percent is what the department uses to perform its public advocacy functions. REPRESENTATIVE KREISS-TOMKINS surmised that if this piece of legislation passes and the department is able to start using this to reimburse its FERC work, is that money coming to the department because, currently, the department is not up to the .17 percent cap and there is a delta between whatever the department is right now, and .17 percent. MR. SNIFFEN said Representative Kreiss-Tomkins is exactly correct, that delta is the only thing that would be affected by this bill. He offered that the department might shrink that delta a bit in some years, and it might not, because it may be able to cover the department's costs with the money it currently spends by the way it allocates money among the utility functions and its FERC functions. That's the delta that could be affected, for example, he advised, in 2017 it was less than $40,000, and as the department's budgets unfold, no one knows what it will be in future years. He explained that this bill is not more about increasing that cap because the cap is the cap, but rather the bill gives the department the flexibility to move money under the cap among the functions the department performs. 1:46:02 PM REPRESENTATIVE KREISS-TOMKINS surmised that the department is not at the delta, and asked approximately where the department is in terms of percentage. MR. SNIFFEN responded that he does not have the exact number but it is closer to .167, and that is what the department budgets for every year. He reiterated the department doesn't necessarily use all of that budgeted money, but when it predicts what its costs would be, it is pretty close. 1:47:08 PM REPRESENTATIVE KREISS-TOMKINS surmised that this bill would allow the department to close that 0.03 gap, $40,000 or whatever it ends up being. He noted that the department is not up to its cap currently, and whether that means the RCA is participating in these extra 0.03 percent of overall utility funds. He asked where the delta would go in the event the department was not at its cap. MR. SNIFFEN reiterated that it is carried over to the next cycle and it is considered in the department's next budget. REPRESENTATIVE KREISS-TOMKINS commented that, with Mr. Sniffen's background, he likes the direction the Department of Law (DOL) has been going in terms of becoming more self-sufficient, and also, with this legal work it makes a lot of sense given the fairly unsettled direction the legislature has given the agencies over the last few years. He asked Mr. Sniffen to speak to the amount of money the department had spent on outside counsel for FERC work, how the department's overall expenditures on FERC work has changed by moving from outside counsel to more of an in house approach, and how the department might see that trend continue to play out in the event this bill passes. MR. SNIFFEN replied that over the last, at least, two years, the department reduced its reliance on outside FERC counsel significantly. The department's budget for FY18 is $375,000 and previously it was over $1 million. He noted that [the reliance] depends on whether the department, for example, was involved in a large piece of litigation, and he pointed to the department's "strategic reconfiguration thing" that legislators may have heard about. He explained that a lot of effort was involved, the department recovered just over $200 million for the state largely due to its outside counsel. He acknowledged that the department still needs the outside counsel, but it is trying to bring it in house, with himself and one other attorney dealing with these issues and learning "this stuff" to build in house expertise and rely less and less on outside counsel. Although, he pointed out, it is difficult when the outside counsel has been doing this work for the state for 30 years and has much in house knowledge and historical information from doing it so long, and the department relies on that historical knowledge in moving forward. Currently, he advised, the department is trying to use that outside counsel in more of an advisory role to help the department navigate the complicated FERC issues, and in the future the advisory role will, hopefully, be less and less. 1:50:13 PM CHAIR CLAMAN pointed out that under the current scenario, because the legislature hasn't given the attorney general authority to participate in FERC matters, currently, in order to participate in a FERC matter, the department, essentially, must hire outside counsel. The department must then obtain a separate appropriation or put it in the budget somewhere to give the department funds, on top of the .17 percent, he said. MR. SNIFFEN agreed, and he explained that the department uses general fund money for its FERC work currently. Having the ability to pass some of this cost on to the regulatory cost charge will probably not eliminate the need for that general fund money, but it will somewhat offset some of those costs. CHAIR CLAMAN surmised that what is essentially happening today is that the .17 percent, without the statutory change, is all used in RCA matters. MR. SNIFFEN answered in the affirmative. CHAIR CLAMAN continued that if the legislature passes this legislation, it essentially means that from that .17 percent, in just picking a number out of a hat, if .07 was used for FERC and .10 was being used for RCA, what would happen is that the people regulated in RCA would pay a little less, and those regulated in FERC would pay a little more, but the .17 remains the same. MR. SNIFFEN answered in the affirmative. 1:51:45 PM REPRESENTATIVE REINBOLD asked for verification that Tessoro and Petro Star are the two main businesses that will be impacted, and that Mr. Sniffen does not see any impact to anyone else. MR. SNIFFEN noted that there may be some impact on some Cook Inlet pipeline operators, such as Hilcorp Energy to the extent they are also purchasing oil or gas from one of those folks for their operation. Other than that, he said that Representative Reinbold was correct. 1:52:59 PM REPRESENTATIVE REINBOLD said the three main businesses are Hilcorp Energy, Tessoro, and Petro Star, and acknowledged that she doesn't understand anything that is going on with FERC and TAPS right now. She asked whether there is something in the works right now, and whether he was anticipating some need for the attorney general to get involved with FERC right now. MR. SNIFFEN explained that currently the state is in litigation involving tariff rates on TAPS for the years 2011-2015, and is in a settlement posture currently. Depending upon how that goes, if the department ends up in litigation on that case, it will require a lot of resources to litigate that case. Although, the end result of that case could mean $500 million to the state, plus or minus. Therefore, he pointed out, it is important that the department deal with that litigation appropriately. REPRESENTATIVE REINBOLD asked the name of the parties involved in the lawsuit. MR. SNIFFEN answered that joint parties are involved in this case, it is the state, FERC trial staff, and Tessoro and Anadarko Petroleum. The state is challenging the rates filed by the carriers for the TAPS tariffs for years 2011-2015, he explained. MR. SNIFFEN, in response to Representative Reinbold, answered that the carriers are ExxonMobil Corporation, ConocoPhillips Alaska, Inc., and British Petroleum. REPRESENTATIVE REINBOLD asked whether those companies will be impacted by this. MR. SNIFFEN reiterated, "No." REPRESENTATIVE REINBOLD asked for verification that solely Hilcorp Energy, Tessoro, and Petro Star are impacted by this lawsuit. MR. SNIFFEN agreed, and said it would be "the intrastate, the instate folks who actually operate pipelines in the state." 1:54:57 PM REPRESENTATIVE REINBOLD asked whether Mr. Sniffen was asking for a law change because the department needs something for a lawsuit [involving tariffs from] 2011-2015, some sort of tariff settlement. MR. SNIFFEN said no, this law probably wouldn't impact that much, to the extent the department can use some of the RCC funds to pay for a little bit of that work, but that work will far exceed any money the department might receive from shifting money around in this regulatory cost charge. REPRESENTATIVE REINBOLD reiterated her previous questions and asked whether there is any other reason "why now" the department wants the attorney general to work with the FERC, and whether RCA and FERC is supporting it. MR. SNIFFEN answered that the department approached the RCA and it did not express any opposition, it did not approach FERC because it doesn't have a role in this. 1:56:30 PM REPRESENTATIVE REINBOLD asked whether there is anything else Mr. Sniffen is anticipating going before the FERC that requires the attorney general to be involved. MR. SNIFFEN responded that the department will have ongoing matters with FERC on the TAPS pipeline until the pipeline is finished, and those matters vary year-to-year. He explained that it is largely driven by what the carriers decide they want to do, for example, when the carriers want to raise their rates they have to make a filing, the department reviews it and decides whether those rates are just and reasonable. He explained that those rates directly impact production taxes and royalties the producers pay to the State of Alaska because those transportation costs are deducted when determining value at the wellhead. He clarified that, currently, the state has a lawsuit against these carriers for these TAPS rates before FERC. The carriers filed their rates, the department is reviewing them to determine whether the rates are [just and reasonable]. He said he does not want to leave the impression that the department has litigation out there against them, and explained that the department has had this administrative process going on which could become a lawsuit, but that is currently not happening. 1:58:01 PM MR. SNIFFEN, in response to Representative Eastman, agreed that the .003 amount is not expected to get to the full amount needed to participate in the proceedings. REPRESENTATIVE EASTMAN asked the value of the .17, and how much higher would it need to go to get the department to the amount needed. He offered that he recognizes, from previous hearings, that the department is under financial constraints, and if this is an important issue he would not want to see these types of proceedings competing unnecessarily against prosecuting cases in the criminal division, for example. MR. SNIFFEN responded that the .17 percent is a percent of another number, it's the gross operating revenues of these pipelines and utilities, which varies from year-to-year. He opined that last year it was roughly $2.1 million, and there is an amount under that which pays for the work performed at the attorney general's office to represent the public's interest in these proceedings, and that will not change. The department would use a small amount for the department's work related to pipeline work, for example, but that is mostly work before the RCA on utility matters and not pipeline matters. As to how much money is needed down the road to continue looking at these TAPS tariff cases, he said he does not have that answer. The department's budget now has attorneys devoted to working on these matters, and maybe one or less attorneys to do FERC work. He related that the department will rely on its outside counsel, as it has in the past, and hopes to wean off a bit in moving forward. It just depends on the type of cases that come up, in the event complicated big pieces of litigation come up, and it has to start hiring experts, for example, it may cost a little more. 2:00:29 PM REPRESENTATIVE EASTMAN noted that last year the amount was $2.1 million, and he asked how much above the .17 percentage point the department would have needed in order to not incur general fund obligations. MR. SNIFFEN replied that he does not have an answer and will see if the department can get that information to him. CHAIR CLAMAN opened public testimony. After ascertaining no one wished to testify, closed public testimony on HB 120. 2:01:30 PM REPRESENTATIVE LEDOUX asked him to explain the procedure used to ensure that the word had gotten out to the stakeholders who could be impacted by the bill. MR. SNIFFEN advised that the department spoke with representatives of the utilities, it approached the Department of Commerce, Community & Economic Development and the Regulatory Commission of Alaska (RCA) to offer their input on the bill, and their feedback indicated they did not have concerns with HB 120. He offered that he heard from representative of Hilcorp Energy who didn't express any opposition to it at that time, and the department has not heard from any of the other potential stakeholders. 2:02:33 PM REPRESENTATIVE LEDOUX asked Mr. Sniffen to explain exactly what the department has done to make sure they are at least aware of this bill. MR. SNIFFEN answered that the department contacted the stakeholders through informal communications, and advised that Robin Brena, representative of Tessoro, is aware of the bill and hasn't expressed any concern to Mr. Sniffen. Mr. Sniffen related that the department couldn't think of any others who would have an interest in this bill that are not already very aware of the legislation and its impact. REPRESENTATIVE REINBOLD related that it is important to get these people before the committee, because any time the bill impacts the other side it is good to hear their thoughts. [HB 120 was held over.]