Legislature(2009 - 2010)BUTROVICH 205
03/26/2009 11:00 AM Senate ENERGY
| Audio | Topic |
|---|---|
| Start | |
| SB150 | |
| SB136 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 150 | TELECONFERENCED | |
| += | SB 135 | TELECONFERENCED | |
| += | SB 136 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 136-IN-STATE PIPELINES: LEASES; CERTIFICATION
CHAIR MCGUIRE announced the consideration of SB 136.
12:13:05 PM
JOE BALASH, Special Assistant to the Governor for Energy and
Natural Resource Issues, said SB 136 is part of the Governor's
three-part plan to initiate an instate natural gas pipeline
project. The first part is to secure funding in the current
legislative budget cycle to initiate work to define the need for
and timing of a pipeline to deliver natural gas to Alaskans,
particularly in areas where it's needed most. That includes
conducting an alternatives analysis, selecting a route, applying
for major permits including rights-of-way, identifying the
source of gas and customers, and bringing all the technical and
commercial pieces together to create an opportunity to sanction
a project as early as 2011. The Governor has appointed Harry
Noah, a former DNR commissioner, as project manager for this
first part.
The second part of the plan is a separate piece of legislation
to change the statutory missions of the Alaska Natural Gas
Development Authority. The notion is to broaden the horizon.
The third part, which is contained in SB 136, makes changes to
the Right-of-Way Leasing Act and the Pipeline Act for the
purpose of facilitating the commercial and business arrangements
between shippers of gas, a pipeline project, and the customers
that will be necessary for a commercial project to move forward.
12:15:11 PM
MR. BALASH explained that in late 2008 and early 2009 the
administration began discussions with the parties that were
interested in pursuing a bullet pipeline project, specifically
Enstar and Anadarko, and identified some things that could be
smoothed out to make the process flow easier. The biggest
potential roadblock they identified was that under current law
state right of way leases require that a pipeline and lessee
commit to providing common carrier service on that pipeline.
Describing common carrier service as the gold standard of access
for shippers of gas, he explained that, in general, a common
carrier pipeline has to provide service to any and all comers
when requested. If shippers' requests for service reach the
maximum capacity of that pipeline, the pipeline must pro-rate
the existing shippers and make room for the new entrant.
MR. BALASH pointed out that a 24 inch pipeline from the North
Slope to Southcentral is certainly a world-class project that
would require some significant financial commitments on the part
of the players in order to secure the financing necessary to
construct the project. The shipper, in this case Anadarko, would
like contractual certainty that they won't be pro-rated if they
make the financial commitments to develop a gas field and then
want to get that gas to market. They want certainty that they
won't lose any of their capacity in the pipe so that they'll be
able to follow through on contractual commitments they've made
to customers in terms of delivery.
12:17:31 PM
MR. BALASH said that as the administration moved forward to
introduce the bill and was taking into consideration other
dynamics with regard to the role and scope of ANGDA and the need
to get gas to more than just Southcentral Alaska, the Governor
asked why the kind of provisions they were asking the
Legislature to make for a bullet line aren't good enough for any
other pipeline. Thus SB 136 is drafted in a manner that would
apply to all instate pipelines.
MR. BALASH said he would throw out one caveat before getting
into the sectional analysis. That is that because the
administration did its homework with parties interested in the
bullet line, they did not do the homework necessary to
understand how these changes might impact the operations of
existing pipelines in Cook Inlet and in particular the potential
impact to future pipelines in Cook Inlet.
CHAIR MCGUIRE said the bill is not retroactive in nature.
MR. BALASH said that's correct.
CHAIR MCGUIRE asked if there are any pipelines that are in early
stages that this may impact.
MR. BALASH replied he isn't aware of any but the bill is a
fairly complicated body of law, particularly in the Pipeline
Act. With the Chair's indulgence he said he may defer some
questions to the attorneys who are online representing the
Department of Law and the Regulatory Commission of Alaska.
12:20:00 PM
CHAIR MCGUIRE noted that page 10, line 11, says that the Act is
effective immediately. She asked Mr. Ostrovsky and Mr. Stoller
if they see any impact to existing pipelines in Cook Inlet.
Existing pipelines would probably argue that they shouldn't be
forced to be common carriers when, looking forward, other
pipelines have the opportunity to be contract carriers, she
added.
LARRY OSTROVSKY, Civil Division, Oil, Gas & Mining Section,
Department of Law, Anchorage, agreed with Mr. Balash that the
bill is written to be prospective. It would apply to anybody who
is going to apply for a pipeline right-of-way lease so it
applies equally to every intrastate pipeline.
SENATOR WIELECHOWSKI asked if these provisions would apply if
the line were built intrastate from Prudhoe Bay to Valdez.
MR. OSTROVSKY replied they would apply.
SENATOR WIELECHOWSKI asked if this would apply to a line built
under AGIA by TransCanada Alaska to Valdez.
MR. OSTROVSKY said this is designed for gas pipelines that
originate and terminate within Alaska. He cited Section 3 on
page 2, line 19.
ROBERT STOLLER, Assistant District Attorney, Civil Division,
Commercial/Fair Business Section, Department of Law, Anchorage,
stated agreement with Mr. Ostrovsky.
CHAIR MCGUIRE said at least one proposal envisions supplying the
LNG plant in Kenai for export capacity. Noting that this goes
back to the FERC decision on jurisdiction, she asked what would
happen if the line meets the requirements under Section 3, but
it's envisioned, and it happens, that export of LNG comes out of
that line.
MR. BALASH said the fundamental question will be whether or not
FERC asserts jurisdiction, because in the Pipeline Act RCA more
or less concedes federal jurisdiction in cases where that
happens. When federal law preempts state regulation, the state
does not assert regulation over the facilities or pipelines or
assets. Fortunately TransCanada's license terms require them to
abide by many of the things that are asked in SB 136.
12:24:05 PM
SENATOR WIELECHOWSKI asked if this would apply to a spur line
off the main line as is being contemplated by ANGDA.
MR. BALASH replied he believes the answer is yes, but it will
depend on where federal jurisdiction begins and where it ends.
CHAIR MCGUIRE asked if the FERC mandates common carrier status.
MR. BALASH explained that under the Natural Gas Act FERC
provides for contract service in the regulation of pipelines.
Firm service contracts are contemplated, but then all the
provisions in the Natural Gas Act are designed to prevent
discriminatory behavior by pipelines.
CHAIR MCGUIRE observed that if an intrastate pipeline
contemplated export it would be a contract pipeline, so it
wouldn't matter if it was under federal or state regulation.
MR. BALASH replied we would hope so but if federal jurisdiction
is not asserted over the pipeline, the state right of way leases
require the lessee to covenant that they will provide common
carrier access. The Pipeline Act allows for firm transportation
service to be offered and regulated by the RCA, but it's an
incongruity between the Right-of-Way Leasing Act and the
Pipeline Act. It's a brain teaser to try to marry the two and
make sure that when the state enters into a lease arrangement
with a pipeline that it is getting the kind of commitments from
the pipeline that will protect the public interest. The Right-
of-Way Leasing Act in intended to do that.
SENATOR WIELECHOWSKI asked the value of the lease for state land
on TAPS.
MR. BALASH said he doesn't have that information but he'd be
happy to find out.
12:27:29 PM
SENATOR WIELECHOWSKI noted that he had mentioned $1 million, and
asked if he has a sense of what the lease would run from Gubik
to Southcentral.
MR. BALASH said the $1 million threshold in bill Section 3,
mimics language in AS 38.35.120 regarding covenants that a
lessee is required to make for pipelines valued at $1 million or
more. He isn't certain in what year the $1 million was put into
law, but the decision was to use the amount that's in statute
for purposes of consistency.
SENATOR WIELECHOWSKI said if he reads this correctly "these
covenants are triggered when you have a noncompetitive lease of
state land for rights-of-way for natural gas pipeline valued at
a million dollars or more."
MR. BALASH said it's for a pipeline that is valued at $1 million
or more.
SENATOR WIELECHOWSKI said he isn't sure that it says that and
asked if he's saying that the million dollars applies to the
value of the natural gas pipeline and not to the value of the
rights-of-way.
MR. BALASH said that's his understanding.
SENATOR WIELECHOWSKI asked for legal clarification because he
reads it differently.
MR. OSTROVSKY said he reads the statute to mean a natural gas
pipeline valued at a million dollars or more. He conceded that
he can see how it could be read both ways and he'll verify his
answer.
12:29:27 PM
SENATOR WIELECHOWSKI said if there's uncertainty he'd argue that
it should be clarified.
CHAIR MCGUIRE suggested some modifying language. She asked what
pipelines would be valued at less than $1 million and who the
state might want to keep out of this new statutory framework.
MR. BALASH said he believes the provision was put into AS
38.35.120 in 1972 or 1974, but the question is at what point a
pipeline becomes big enough to affect the public interest such
that these kinds of protections and requirements should apply.
CHAIR MCGUIRE asked him to clarify that before the next hearing.
She understands that this is incorporates an existing statute to
marry philosophical concepts, but it reflects a policy decision.
Either the policy decision is good today and the dollar amount
needs to coincide or the policy decision is no longer relevant
and all pipelines should be regulated under this structure.
12:31:20 PM
MR. BALASH continued the bill overview and said that sections 1
and 2 make corrective references in statute sections of Title
38. Section 3 adds a new section 38.35.121 to the Right-of-Way
Leasing Act. Section 120 requires a lessee to make certain
covenants to the state and section 121 would put into place an
additional set of covenants that a lessee would make when
applying for a state right-of-way lease. The additional
covenants are contained on pages 2-6 and are built on the must-
haves in the Alaska Gasline Inducement Act. They are the things
that were requested of applicants under AGIA that are intended
to ensure that benefits of a project accrue to the citizens,
businesses and workers in Alaska. In addition they provide the
predictability of access to a pipeline that is important for
additional exploration and development to occur.
The first is the commitment to solicit demand every two years
for additional pipelines. Next are the terms under which they
would solicit that demand. Item three is the commitment to seek
the approvals to make the expansion happen. Item four is the
commitment to reasonable engineering increments, and identifying
what those increments might be based on the design of the pipe
when it's first constructed. Item five is the commitment to
expand on those increments on commercially reasonable terms.
Item six is the commitment to treat the expansions on a rolled-
in basis with a cap up to 115 percent of the day-one rate. Item
seven is the commitment to offer distance sensitive rates. The
administration asked for that under AGIA for the big pipe and
believes it is applicable here as well. Item eight relates to
Alaska hire to make sure that the citizens are benefited in the
construction of a project such as this. Item nine is the
commitment to negotiate, prior to construction, a project labor
agreement (PLA) that the lessee will commit to. Item ten is the
commitment to be regulation by the RCA under AS 42.06, the
Pipeline Act.
12:34:30 PM
Section 4 sets out the definitions for "commercially reasonable
terms" and "reasonable engineering increments" in the Right-of-
Way Leasing Act to make sure everyone is talking about the same
thing in section 121.
Section 5 amends the Pipeline Act and spells out that the
covenants in Title 38 under the Right-of-Way Leasing Act are
applicable to the lessee, and that the RCA has jurisdiction to
enforce the covenants as a matter of its regulation of the
pipeline provider.
Section 6 allows an additional certificate to be provided by the
RCA. Mr. Balash continued as follows:
This goes back to the bigger picture in terms of what
it is we're hoping to achieve in the next two and a
half years in terms of getting all of the major
permits under way and basically accumulated and put
together for a project to be sanctioned as early as
2011. What this would allow the RCA to do is grant a
conditional certificate and identify the conditions
that need to be met. If for instance, we had an
application for a certificate on a particular project
that didn't necessarily have a gas supply committed
yet. We want them to be able to go through the steps
at the RCA to be able to get their certificate - much
like we do for conditional rights-of-way at DNR. You
can get a conditional right-of-way granted that spells
out the conditions that must be satisfied to make that
right-of-way firm. So this would take that same
concept and apply it to a certificate that's required
by the Regulatory Commission of Alaska and allow that
same kind of head start, as it were, on the regulatory
process to take place.
Section 7 sets out the enforcement authority of the RCA.
Section 8 changes the definition of firm transportation service
in the Pipeline Act to make it clear that firm service means
that a shipper on a pipeline can not be prorated.
Section 9 adds the definition for "common carrier" that allows
somebody who has an existing right-of-way lease - where they
made the commitment to common carrier service - to be able to
then offer firm transportation service and interruptible
transportation service on that pipeline.
12:37:48 PM
SENATOR WIELECHOWSKI asked the status of ANGDA's work on the
spur line.
MR. BALASH replied his understanding is that ANGDA very recently
entered into a reimbursable arrangement and paid funds to BLM to
continue with the EIS for the Richardson Highway route on the
spur line work.
SENATOR WIELECHOWSKI asked if the administration supports
ANGDA's efforts to build the spur line.
MR. BALASH replied:
We have been supporting ANGDA since day one of the
Palin administration. And the question is,
fundamentally, how to evaluate what opportunities and
needs there are for pipeline service in Alaska in
terms of the spur line project that has been under
pursuit here for the last 15 to 16 months by ANGDA.
Certainly it is complementary to a large diameter
project that would be going across the border and
similar to that pursued by TransCanada and Denali. And
in that regard is very helpful to the overall delivery
of gas to Alaskans.
But, whether or not that's going to be the right
vehicle - whether or not we need to see a bullet line
constructed sooner than a large diameter pipeline may
come into service - is something that we're attempting
to spell out, flesh out and understand more fully. It
may be that Cook Inlet gas supplies reach a critical
point here, whether it be due to deliverability or any
number of other reasons, and because a bullet line
requires such a long lead time to plan and construct,
we want to get started now. And so that's been the
focus here lately from the Governor.
12:41:00 PM
SENATOR WIELECHOWSKI asked if the administration has to sign off
on ANGDA expenditures.
MR. BALASH said he'd be happy to find out.
SENATOR WIELECHOWSKI asked if the administration has refused to
sign off on expenditures that ANGDA has requested.
MR. BALASH said his understanding is that the most recent
request for the work with BLM was delayed somewhat, but it did
go through. They have been scrutinizing whether or not requests
by ANGDA for contracting and expenditures are consistent with
the statutory mission of the authority and the appropriations
made by the Legislature.
SENATOR WIELECHOWSKI asked if he knows if any requests for
expenditures by ANGDA have been denied.
MR. BALASH replied he isn't aware of any outright denials, but
he isn't sure about the latest status.
SENATOR WIELECHOWSKI said he'd appreciate an update on that and
asked if the administration has requested any changes in
leadership at ANGDA.
MR. BALASH said he understands that there have been
conversations about various approaches related to overall
direction and willingness to consider additional information,
but he hasn't participated in those deliberative conversations.
12:43:20 PM
SENATOR WIELECHOWSKI restated the question.
MR. BALASH replied he doesn't have an answer.
SENATOR WIELECHOWSKI asked him to look into that and get back to
him.
MR. BALASH said he'd be happy to.
CHAIR MCGUIRE asked Mr. Balash find out how companies that are
considering a bullet line are reacting to the implementation of
the covenants. She noted that sometimes attempts to incentivize
make for less incentive to the private sector. A company is
considering building a bullet line and Alaska needs that
project. She appreciates many of the covenants and she wouldn't
want the committee to pass a piece of legislation that might
interfere with current business plans and the free market
opportunity for a bullet line.
MR. BALASH agreed and added that the parties they've had
discussions with were aware of the administration's view and
position on the need for the must-haves. But, he said he can't
speak for them here.
CHAIR MCGUIRE announced she would hold SB 136 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Bill Packet for SB 150.pdf |
SENE 3/26/2009 11:00:00 AM SENE 3/27/2009 11:00:00 AM |
SB 150 |
| Bill Packet for SB 136.pdf |
SENE 3/26/2009 11:00:00 AM |
SB 136 |