Legislature(2013 - 2014)BARNES 124
02/13/2013 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB72 | |
| HB4 | |
| HB72 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 72 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 4 | TELECONFERENCED | |
HB 4-IN-STATE GASLINE DEVELOPMENT CORP
3:35:27 PM
CO-CHAIR SADDLER announced that the next order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4, "An Act relating to
the Alaska Gasline Development Corporation; making the Alaska
Gasline Development Corporation, a subsidiary of the Alaska
Housing Finance Corporation, an independent public corporation
of the state; establishing and relating to the in-state natural
gas pipeline fund; making certain information provided to or by
the Alaska Gasline Development Corporation and its subsidiaries
exempt from inspection as a public record; relating to the Joint
In-State Gasline Development Team; relating to the Alaska
Housing Finance Corporation; relating to the price of the
state's royalty gas for certain contracts; relating to judicial
review of a right-of-way lease or an action or decision related
to the development or construction of an oil or gas pipeline on
state land; relating to the lease of a right-of-way for a gas
pipeline transportation corridor, including a corridor for a
natural gas pipeline that is a contract carrier; relating to the
cost of natural resources, permits, and leases provided to the
Alaska Gasline Development Corporation; relating to procurement
by the Alaska Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of natural gas
transportation contracts; relating to the regulation by the
Regulatory Commission of Alaska of an in-state natural gas
pipeline project developed by the Alaska Gasline Development
Corporation; relating to the regulation by the Regulatory
Commission of Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating to the
Alaska Natural Gas Development Authority; relating to the
procurement of certain services by the Alaska Natural Gas
Development Authority; exempting property of a project developed
by the Alaska Gasline Development Corporation from property
taxes before the commencement of commercial operations; and
providing for an effective date."
3:36:06 PM
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, continued her sectional analysis of SSHB 4 on
behalf of the joint prime sponsors, Representatives Chenault and
Hawker. She said SSHB 4 proposes a regulatory framework and
highlighted reasons why the state regulates. The legislature
decides if something should be regulated, how it should it be
regulated, and who should regulate it, she explained. Generally
speaking, the legislature has delegated that regulation to the
Regulatory Commission of Alaska (RCA) for public utilities in
the state and for oil and gas pipelines. There are overall good
reasons to regulate something that provides a service to people,
especially when there is little competition to provide that
service. Thus, regulation protects the provider of the service,
the consumers of the service, and members of the public when the
public has a benefit from that service.
3:37:55 PM
MS. DELBRIDGE pointed out the particular things the RCA does
when regulating. The RCA certifies that someone wanting to
provide a service is qualified to do so. The RCA ensures that a
provider offers safe, adequate services and facilities, and that
those services are provided at reasonable rates, terms, and
conditions. The RCA also ensures that while providing for
reasonable rates, the service provider has an opportunity to
make a reasonable rate of return on its investment in providing
that service. The RCA looks out for people needing access to
that service by ensuring there is not undue discrimination in
charges and in services. The RCA ensures that the carrier has
enough financial ability to provide the service it is asking to
provide. The RCA further provides a structure through
regulation so the carrier can set out contract terms and provide
changes to those terms as circumstances change over time.
3:38:54 PM
MS. DELBRIDGE reminded members of the need for an Alaska Gasline
Development Corporation (AGDC) pipeline to operate as a contract
carrier. Alaska currently has no regulatory framework for an
in-state gas pipeline that operates as a contract carrier. Thus
SSHB 4 creates that framework, essentially giving the RCA a new
class of pipelines to regulate - contract carrier gas pipelines.
This proposed regulatory structure applies to any contract
carrier gas pipeline, not just AGDC, and applies only to gas,
not oil, pipelines. This proposed regulatory structure does not
apply to a pipeline that falls within a federal regulatory
jurisdiction, such as that of the Federal Energy Regulatory
Commission (FERC). Further, a pipeline regulated under this new
contract carrier chapter is exempt from regulation under other
regulatory chapters. Also included in SSHB 4 are housekeeping
sections needed by the RCA in the chapters under which it
regulates. These tell the RCA it can do the regulating job the
legislature has told it to do, such as appointing panels to hear
matters and including in an annual report its regulatory
activities under a given chapter.
3:40:32 PM
MS. DELBRIDGE directed attention to the new regulatory structure
specifically proposed by SSHB 4, starting with Section 29, page
38, through the end of Section 33, page 51. She related that
over the past year and a half, the sponsors worked closely with
AGDC and with the Department of Law attorneys assigned to the
RCA to structure this framework. She related that the RCA told
the sponsors it was very important to be clear in how the
legislature would like it to regulate and to then give the RCA
the direction and authority to carry out that regulation. This
section is not perfect, she said. The sponsors are still
talking with attorneys assigned to the RCA and with the
administration to ensure the appropriate accountability is
included in the bill to protect all parties involved.
3:41:53 PM
MS. DELBRIDGE reviewed the provisions of SSHB 4 that empower the
RCA, paraphrasing from the sectional analysis [original
punctuation provided]:
Section 29 (RCA, conforming), amends AS 42.04.080(a),
Public Utilities and Carriers and Energy Programs,
Regulatory Commission of Alaska, Decision-making
procedures, to allow the RCA to appoint a panel for
hearing matters under the new 42.08.
The RCA needs the statutory authority to appoint a
panel and hear a matter that comes before them under
one of two existing regulatory statutes. This adds the
new regulatory chapter created in HB 4, 42.08, to that
statutory direction, so the RCA will be able to act on
matters that come up under the new regulatory chapter.
Section 30 (RCA review of public utility contracts),
amends AS 42.05, Public Utilities and Carriers and
Energy Programs, Alaska Public Utilities Regulatory
Act, by adding a new section related to RCA review of
contracts entered into by a public utility with AGDC
for transportation or for contracts public utilities
sign to purchase gas or store gas transported on an
instate natural gas pipeline regulated under 42.08.
Public utility contracts with AGDC may include a
covenant for public utilities to collect rates
sufficient to meet contractual obligations. Contracts
to buy or store gas to be shipped on an instate
natural gas pipeline regulated under 42.08 must be
submitted to the RCA before they take effect. The RCA
has 180 days to disapprove contracts as presented or,
if contracts are found not just or reasonable, to
disapprove the contracts. Contracts approved are not
subject to further RCA review. The RCA may extend the
180 day review period if a public utility fails to
provide supplemental information that is available to
the public utility.
This section provides an interface between regulation
of public utilities, and regulation of a contract
carrier natural gas pipeline. If the RCA approves a
contract involving a utility and the pipeline carrier,
the utility has assurances that it will be able to
recover its costs in rates charged to utility
customers.
Section 31 (RCA conforming) amends AS 42.05.711,
Public Utilities and Carriers and Energy Programs,
Alaska Public Utilities Regulatory Act, Exemptions, to
exempt a pipeline subject to regulation under 42.08
from regulation under 42.05.
Section 32 (RCA conforming) amends AS 42.06, Public
Utilities and Carriers and Energy Programs, Pipeline
Act, by adding a new section to article 7 exempting a
pipeline subject to regulation under 42.08 from
regulation under 42.06.
3:42:23 PM
MS. DELBRIDGE elaborated on Section 30, explaining that the
provisions are like a pre-approval process, which more and more
utilities are shifting towards. For example, when embarking on
its extensive Southcentral Alaska power project, Chugach
Electric Association, Inc. sought pre-approval from the RCA for
that expenditure so the utility would know the money it invested
in these upgrades and new facilities would be "certified" as
things the RCA knew needed to happen and that the utility could
pass on [to consumers]. Similar to this was the Cook Inlet
Natural Gas Storage Alaska, LLC (CINGSA) facility, where the RCA
essentially granted utilities pre-approval so they would know
that if they paid for storage the expense could be passed on to
consumers. Under Section 30 a contract between a utility and
AGDC can include a covenant that the public utility will be able
to recover its costs in the rates charged to consumers. This is
a good backstop for protecting consumers, as well as protecting
the electric and gas utilities that will hopefully be
participating in this pipeline.
3:45:00 PM
REPRESENTATIVE TUCK inquired whether this proposed structure is
identical to an existing gas utility.
MS. DELBRIDGE replied the structure is very different. The RCA
currently regulates gas or other public utilities under AS
42.05, Public Utility Regulation. The RCA can also regulate
pipelines under AS 42.06, the Pipeline Act, which addresses oil
pipelines or common carrier pipelines. Thus, SSHB 4 creates AS
42.08 for contract carrier in-state gas pipelines. Section 30
of the bill is the interface between this new structure and the
way the RCA already regulates public utilities for tariff rates
that can be passed on to consumers.
3:46:01 PM
REPRESENTATIVE TUCK posed a scenario in which ENSTAR purchases
gas from a supplier that is shipping on this pipeline. He asked
whether RCA will have jurisdiction over this purchase.
MS. DELBRIDGE responded the RCA will have jurisdiction over all
shipping contracts on the AGDC pipeline. If ENSTAR procures a
supply of gas from a producer in Cook Inlet, the RCA does not
necessarily have to approve that supply contract, but the RCA
does approve the second part where ENSTAR gets the gas to its
customers. When, in delivering gas to its utility customers,
ENSTAR looks to recover its costs of getting the gas in the
first place, the RCA must go by the best information that ENSTAR
and the producer had a reasonable agreement for that. ENSTAR
might ship gas on the pipeline or it might buy gas that was
shipped by someone else on the pipeline, so its contract might
not be with AGDC for shipment. However, if ENSTAR has a related
contract, SSHB 4 allows another level of RCA review of those
contracts so the utility has assurance that it will be able to
cover those costs later.
3:47:46 PM
REPRESENTATIVE SEATON charged that the RCA's gas distribution
regulation is not at all transparent. He said the RCA does not
seek to limit costs and many times the tariffs are agreed to by
stipulation, thereby preventing the public from getting the
background information from the RCA. Two cities he is dealing
with are having this problem with gas distribution systems, he
related. Two years ago there was $1.21 in unallocated labor
costs per foot of line being put in, which increased to $21.00
the next year, but backup and justification information cannot
be accessed because the tariff was adopted by stipulation. He
urged a provision be put into SSHB 4 requiring that background
information for stipulated tariffs be made publically available
and maintained by the RCA. Rather than regulating and looking
at the costs as it is supposed to do, the RCA acts like an
adjudicatory authority. When one utility is objected to by
another, the lawyers argue it out in front of the RCA and the
RCA makes a decision, but all the background material then
becomes confidential and is held by those separate companies.
He said he wants to ensure that this same system is not put in
place [under SSHB 4] because it is a way for data that is
supposed to be public to be hidden by the RCA process. Given
SSHB 4 is a work in progress, it must be ensured going forward
that if the public has questions about those contracts or
distribution of that gas there is a way to find it. Clear
criteria must be developed that things must be maintained
transparently in the new RCA regulations.
3:51:24 PM
REPRESENTATIVE OLSON inquired whether anyone from the RCA is
online.
CO-CHAIR SADDLER replied there is not today but the plan is to
have someone from the RCA talk to the committee at some point.
MS. DELBRIDGE stated the Department of Law attorney for the RCA,
Stuart Goering, is following the hearings and paying close
attention, and would be glad to answer questions at the
appropriate time.
3:52:15 PM
MS. DELBRIDGE, continuing the sectional analysis, explained that
Section 33 lays out the new structure for regulating an in-state
natural gas pipeline. She paraphrased from the sectional
analysis [original punctuation provided]:
Section 33 (RCA natural gas pipeline contract carrier)
adds a new chapter to AS 42, Public Utilities and
Carriers and Energy Programs, to create Chapter 08,
In-state Pipeline Contract Carrier. Chapter 08 applies
to an instate natural gas pipeline providing contract
carriage, and exempts an in-state natural gas pipeline
subject exclusively to federal jurisdiction.
House Bill 4 provides for a new category of gas
pipeline carriage, contract carriage, and includes a
new regulatory framework for a contract carrier gas
pipeline. The new 42.08 is a shift from traditional
cost-based regulation, and directs the Regulatory
Commission of Alaska to instead evaluate whether
negotiated contracts are fair and reasonable. Checks
and balances are included to set basic rules ensuring
fair and open processes; to promote exploration and
development of Alaska's gas basins; to protect the
public welfare; and to require heightened scrutiny for
contracts entered into by affiliated parties.
MS. DELBRIDGE noted this is the only place in this regulatory
structure in which special qualifications are included just for
AGDC. She continued paraphrasing [original punctuation
provided]:
Sec. 42.08.010, Application of chapter; exemption,
applies this chapter to an instate natural gas
pipeline providing service as a contract carrier.
Exempts an instate natural gas pipeline subject
exclusively to federal jurisdiction.
Sec. 42.08.020, Qualification of the Alaska Gasline
Development Corporation; findings, determines that
AGDC is financially and managerially fit, willing and
able to provide service under 42.08. States that an
AGDC pipeline is required by public convenience and
necessity. Directs the RCA to determine whether any
entity applying under 42.08 is technically fit,
willing and able.
The findings made on behalf of the RCA in this section
are findings that the RCA usually needs to make in
issuing a pipeline building permit - a Certificate of
Public Convenience and Necessity. The advance findings
are not valid for an applicant other than AGDC. For
AGDC and any applicant, the RCA will need to determine
whether the entity is technically able to build the
project and provide the service proposed.
3:54:29 PM
MS. DELBRIDGE moved to review of the general instructions to the
RCA in Section 33, paraphrasing [original punctuation provided]:
Sec. 42.08.220, General powers and duties, provides
enabling direction for the RCA under 42.08. Requires
permits for construction, interconnections, expansions
and abandonment. Enables the RCA to intervene in
disputes that where not accounted for in contractual
dispute resolution mechanisms, and that threaten the
public safety and welfare. Prohibits the RCA from
requiring rates or tariff regulations, except as
provided in the chapter, and from conducting further
review of contracts approved under 42.08.
3:56:35 PM
REPRESENTATIVE SEATON understood AGDC will be negotiating tariff
rates with particular utilities. He asked whether "prohibits
the RCA from requiring rates or tariff regulations" means the
RCA really has no authority on requiring those tariffs or rates.
MS. DELBRIDGE responded a regulatory body can regulate using a
cost-based approach or can regulate contracts that use a
negotiated rate type approach. Typically, in some cases, the
RCA has been able to decide what rates might be. Because SSHB 4
sets up the structure for an in-state gas contract carrier
pipeline, it is trusting to contracts to create rates that are
reasonable for the parties entering the contracts. Thus, the
RCA would no longer need to go in and make the rates.
3:57:52 PM
REPRESENTATIVE SEATON posed a scenario in which AGDC is not the
full financial contributor and the pipeline is built primarily
by private enterprise. He asked whether in this situation the
RCA would have input on the rate of return. He further asked
what the RCA's duty and power would be in looking out for the
public interest in those negotiated rates.
MS. DELBRIDGE answered the public interest can be defined as,
one, the people using gas provided by public utilities or, two,
the people shipping on an AGDC pipeline, i.e. AGDC's customers,
which may or may not be gas that goes to public utilities. For
a shipper with a contract for gas that is not going to a public
utility, this chapter essentially says that as long as there was
no duress or fraud or an affiliate relationship between those
parties, then that contract is just and reasonable because two
people said "this is the price we are willing to sell/this is
the price we are willing to pay". If a public utility is
involved, there is this additional standard of review that
essentially requires the RCA to give a deeper look to the pre-
approval that the utility will be able to pass that on to its
customers.
3:59:39 PM
REPRESENTATIVE SEATON noted that with FERC there is a generally
approved rate of return. However, given SSHB 4 is for contract
carriage, he asked whether there is anything in the bill that
prevents a negotiated rate of return of 25 percent.
MS. DELBRIDGE replied it will be seen in later discussion that
the carrier must start with a recourse rate, which is a rate
available to any shipper on the pipeline as a starting point for
negotiation. The recourse rate is supported by a cost-of-
service study that includes a rate of return. The RCA standard
of review includes making sure that negotiations from that
[starting] recourse tariff are done so in a reasonable way.
4:00:51 PM
CO-CHAIR SADDLER understood the starting point is based on a
reasonable rate of service, but inquired whether there is
anything to prevent a contractual agreement between the shipper
and the pipeline owner from having a generous rate of return.
MS. DELBRIDGE responded [the shipper] entering into the contract
will be able to see the rate of return being proposed by the
carrier. To some extent, it is highly unlikely that [a shipper]
would sign a contract that creates a 20 percent rate of return
for the carrier. She said SSHB 4 provides a much higher level
of scrutiny for contracts that are between affiliates; it
essentially reverts to the RCA's standard level of review under
AS 42.06, Pipeline Act, which goes into a full rate-based study.
4:02:37 PM
TINA GROVIER, Attorney, Natural Resources and Energy Law, Birch
Horton Bittner & Cherot, Counsel to Alaska Gasline Development
Corporation (AGDC), confirmed Ms. Delbridge's aforementioned
statement to be correct.
4:02:57 PM
REPRESENTATIVE SEATON requested Ms. Grovier to re-state the
issue and elaborate on why Ms. Delbridge is correct.
MS. GROVIER understood the concern is about affiliated entities
and whether there is a tool in SSHB 4 for the RCA to take a
closer look at that. She directed attention to page 45, lines
3-8, which state that if the parties are affiliated and it is
not an arms-length transaction, then "the commission shall
determine whether the precedent agreement or related contract is
just and reasonable using the standards normally applied under
AS 42.06.140", which is the existing RCA common carriage statute
that regulates pipelines.
4:04:37 PM
MS. DELBRIDGE requested Ms. Grovier to address whether the rate
of return that a pipeline carrier creates for itself is limited,
or can the carrier sign contracts giving itself a 20 percent
rate of return that the RCA has no review over regardless of
whether the parties are affiliated.
MS. GROVIER answered that, as she understands it, the recourse
tariff being filed will specify the rate of return in the cost-
of-service study. If the RCA is reviewing that recourse tariff,
that is the opportunity where that would be reviewed.
4:05:33 PM
REPRESENTATIVE SEATON understood the tariff is to pay back the
people who have firm shipping contracts. If that is the case,
will they be receiving a return on that investment, he asked.
MS. DELBRIDGE replied the pipeline will do its work over the
next few years and before recruiting shippers it will do a cost-
of-service study that contains a massive list of things,
including its rate of return opportunity. The study is the
foundation for the rate and the rate is part of the tariff.
Also part of the tariff is all the other terms and conditions of
service. For some shippers, having a greater volume available
is more important than the rate, so there is room to negotiate
some of the terms. The tariff, to start with, is called a
recourse tariff. This recourse tariff goes to the RCA and all
potential shippers, providing a starting point that is eligible
for everybody to play on. Because no one wants to pay more than
is reasonable, the cost-of-service study must support the
elements in the tariff. During the open season the carrier is
asking shippers to buy space in the pipeline. The recourse
tariff is the starting point and the fine points are then
negotiated because different shippers have different priorities;
for example, a shipper may be willing to have its service
interrupted at times in return for a better rate. The hope is
that the negotiations end up with a precedent agreement and that
precedent agreement would include the negotiated rates and the
negotiated terms and conditions. Those precedent agreements are
the contract and that contract has some conditions attached to
it, such as the carrier needs to ensure its project is within a
certain cost range, must start operations by a certain date,
must obtain certain permits, or any number of things. For the
next year or two after signing the precedent agreements and
filling up the pipeline during open season, work is begun on
resolving the conditions. Once the conditions have been met and
the financing is there, the precedent agreements are turned into
firm transportation agreements and that is when the project is
sanctioned and construction begins.
4:10:07 PM
REPRESENTATIVE SEATON said the concern he is trying to get at is
when the shippers are actually the financiers or the owners of
the pipeline or owners of major pieces of the pipeline, the
Trans-Alaska Pipeline System (TAPS) being an example. He said
he wants to ensure that the structure of SSHB 4 will ensure the
tariffs are as low as they can be for generating a generous
return to the financiers.
MS. DELBRIDGE understood the concern and said she will point out
where those extra levels of precautions have been made as she
goes along in her review. She acknowledged the possibility for
shippers to be potential owners, as with any pipeline, and said
the bill has additional backstops for this. That is also where
the firewalls come into play, she continued; for example, "BP
Producer" and "BP Pipeline Company" cannot give themselves
unfair advantages either. If the pipeline is being financed
through revenue bonds, the people rating those bonds and then
financing the pipeline are going to take a very, very good look
at these contracts to ensure it is a legitimate investment for
them to make; part of that is whether the financier has a chance
to earn a reasonable rate of return.
4:12:50 PM
MS. DELBRIDGE, responding to Co-Chair Saddler, said Section
42.08.220 is on page 29 of the bill. Resuming her review, she
paraphrased from the sectional analysis [original punctuation
provided]:
Sec. 42.08.230, Commission decision-making procedures,
directs the RCA to appoint a panel to consider and
decide matters under 42.08, and to expeditiously
adjudicate matters.
Sec. 42.08.240, Publication of reports, orders,
decisions and regulations, is the standard RCA
direction for publishing reports, orders, decisions
and regulations.
Sec. 42.08.250, Application of Administrative
Procedure Act, is the standard RCA exemption from
Administrative Procedure Act adjudication procedures.
Instead, the RCA's adjudication procedures would
apply. The rest of the Administrative Procedures Act
still applies to regulations adopted by the RCA.
Sec. 42.08.260, Annual report, requires the RCA to
include in its annual report activities related to
42.08.
Sec. 42.08.300, Open seasons, sets rules a carrier
must follow when holding an open season. Provides
parameters for holding an open season to ensure
fairness and openness for all interested potential
shippers, including advance notice. Requires a carrier
to hold an open season for pipeline expansion when the
carrier has received requests for firm service from
potential shippers that would enable a commercially
reasonable expansion. Provides that expansions may not
violate the terms of AGIA. Allows a carrier to make
pre-subscription agreements before an open season
begins. Requires a carrier to award firm
transportation service without undue discrimination or
preference.
4:14:02 PM
MS. DELBRIDGE elaborated that the advance public notice required
by Section 42.08.300 must include the recourse tariff, the
proposed form the agreements will take in the end, and
information about such things as pipeline route, capacity,
operating pressures, and quality specifications. The notice
must also be clear as to how the carrier is going to allocate
capacity to the bidders. Any pre-subscription agreements before
an open season begins would still be based on the recourse
tariff.
4:16:06 PM
CO-CHAIR SADDLER inquired who would make the determination that
an expansion is commercially reasonable.
MS. DELBRIDGE answered the determination would be presented
through the RCA. If there was any question as to whether the
opportunity was commercially reasonable, an arbitrator would be
there to decide that.
4:16:32 PM
MS. DELBRIDGE turned back to paraphrasing from the sectional
analysis [original punctuation provided]:
Sec. 42.08.310, Transportation service, provides that
firm service can only be made available through
presubscription agreements or open seasons. Requires a
carrier to offer a recourse tariff with rates
determined on a cost-of-service basis. Allows that
negotiated firm transportation rates may be different
from recourse rates. Requires a carrier to provide
interruptible service in capacity not used in firm
service.
MS. DELBRIDGE explained a carrier must provide a recourse tariff
developed from a cost-of-service basis. The carrier must be
able to roll in rates for expansion, so long as resulting rates
for the current shippers do not exceed the maximums under their
contracts. The carrier must file the recourse tariff with the
RCA. Starting with that recourse rate, AGDC and each potential
shipper can negotiate the rates, the terms, and conditions for
that given contract. She said this section also requires that
things be done fairly. So, AGDC can negotiate, but it has to do
so keeping in mind that that next level of RCA oversight is
going to ensure that these negotiations were done fairly and
that they are responsible and non-discriminatory. The earliest
contracts must include a dispute resolution procedure. Section
42.08.310 also requires the carrier to provide interruptible,
maybe short-term service, for any capacity that is not being
used in firm service. For example, gas and oil fields might go
through seasonal shutdowns for maintenance, leaving capacity
available that could be filled during that shutdown period.
4:18:58 PM
REPRESENTATIVE TARR, returning to Section 42.08.300, asked how
"holding an open season to ensure fairness and openness for all
interested potential shippers" and "pre-subscription agreements"
work together to ensure fairness for all interested parties.
MS. DELBRIDGE replied a carrier will be negotiating privately
with different shippers, whether in a pre-subscription agreement
or in an open season, and both opportunities must start with
that recourse tariff. The contracts coming out of these will
all be managed the same way - as precedent agreements going
forward.
4:20:00 PM
REPRESENTATIVE SEATON inquired whether the negotiated tariffs in
the contracts are generally lower than the recourse rate based
on cost-of-service.
MS. DELBRIDGE responded she thinks it might be the opposite, but
deferred to a representative from AGDC for an answer.
4:20:35 PM
DARYL KLEPPIN, Manager, Commercial Team, Alaska Gasline
Development Corporation (AGDC), Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), understood the
question to be whether a rate negotiated off the recourse tariff
could be lower than the recourse tariff. He said the answer
would be yes, depending upon other terms and conditions as there
are a lot of other issues besides the rate that a [shipper] may
find important and may be willing to pay more or less depending
upon those terms and conditions.
4:21:14 PM
REPRESENTATIVE SEATON pointed out that if negotiations can be
for a tariff that is higher than a recourse rate that is based
on cost of service and a fair rate of return, then that will be
a cost to the consumers or whoever is on the other end of the
pipe. He asked whether the potential here is for a higher rate
or a lower rate and said it raises some concern if it is higher
than the cost-of-service tariffs with no limitation.
MS. DELBRIDGE answered she thinks this is getting to the review
of certain contracts by the RCA in which the RCA looks at how
far above or below that recourse tariff the parties went and how
that rate change was compensated for with other terms and
conditions that are of value. For example, a utility shipper
might feel that a long-term supply of gas is worth a little bit
more than having less gas than it thinks it is going to need and
paying less. There is a value in having certain terms and
conditions met, she said, the price is not everything.
4:23:00 PM
REPRESENTATIVE SEATON stated he is trying to understand why a
shipper would bid for a higher tariff, although a shipper might
bid for a higher price from the seller. He suggested getting
together for further explanation later.
MS. DELBRIDGE agreed to do so.
CO-CHAIR SADDLER surmised the recourse rate sets the benchmark
from which to negotiate depending on other terms and conditions.
MS. DELBRIDGE replied correct and added that it is fairly common
to let the rate fluctuate a little bit because a benefit is
being gained in the terms and conditions.
CO-CHAIR SADDLER commented the provisions are that the contracts
are reviewable.
4:23:58 PM
MS. DELBRIDGE continued her review, paraphrasing from the
sectional analysis [original punctuation provided]:
Sec. 42.08.320, Review of certain contracts by the
commission, requires a carrier to submit all precedent
agreements to the RCA; precedent agreements with other
than a public utility may be kept under seal. The RCA
has 180 days to approve or disapprove precedent
agreements as just and reasonable. Sets the standard
for determining if a contract is made at arm's length
and allows additional RCA scrutiny of contracts made
between affiliated parties that are not substantially
similar to transactions made between unaffiliated
parties. Approved contracts are not subject to further
review.
MS. DELBRIDGE noted Section 42.08.320 has a decision tree: the
RCA looks at the contract and if it was done at arm's length
between two parties, this structure says that that contract is
just and reasonable unless the RCA finds that there was some
kind of unlawful activity or fraud. If a contract was made at
arm's length it is good to go. However, it must be decided what
makes it arm's length. Under SSHB 4, a contract is arm's length
if it incorporates the recourse tariff.
4:25:23 PM
CO-CHAIR SADDLER inquired whether a contract below the recourse
rate will automatically be considered not at arm's length.
MS. DELBRIDGE responded such an agreement would be considered as
not meeting that standard of incorporating the recourse tariff.
[Citing from page 44, lines 27-31, and page 45, lines 1-13 of
SSHB 4], she said an agreement that does not include the
recourse tariff would be considered arm's length if it is
between two state-owned parties or between private parties that
are not affiliated. An agreement between two affiliates would
be considered arm's length if substantially similar to contracts
made between unaffiliated parties. An agreement between
affiliates that is not substantially similar to other contracts
would not be at arm's length, so the RCA would conduct a higher
level of review of that contract.
4:26:25 PM
CO-CHAIR SADDLER asked who within the RCA would make these
evaluations, decisions, and judgments.
MS. DELBRIDGE believed the RCA as a whole would use its existing
procedure, but said she is unsure whether that includes the
whole commission or an administrative law judge. Often the
commission begins hearing a matter and then delegates the follow
through to an administrative law judge.
4:26:57 PM
REPRESENTATIVE P. WILSON read page 44, lines 24-26 of the bill,
which state "a contract that is approved or considered approved
under this paragraph and the associated firm transportation
agreement are not subject to further review by the commission."
She noted this is stated more than once and asked why.
MS. DELBRIDGE replied it was important to structure a regulatory
framework that honored that contracts could be made between two
parties to ship gas on a pipeline. Having a third party that
can keep coming back to review that contract negates the concept
that contracts freely entered into by people that are not under
fraud are fair.
4:27:51 PM
MS. DELBRIDGE resumed the sectional analysis, reiterating that
if a contract is not at arm's length, the RCA will go into a
much deeper level of review and will use the same standards that
it would apply in reviewing a contract under the Pipeline Act,
which is existing regulation for common carrier pipelines,
allowing the RCA to actually make just, fair, and reasonable
rates or to require those. She said Section 42.08.320 is clear
that the carrier must provide the RCA with a cost-of-service
study so that the RCA actually has the tool it needs to do this
extra level of review. The section further provides that when
contemplating approving or disapproving these contracts, the RCA
must consider the consequences of failing to approve a contract.
4:29:09 PM
MS. DELBRIDGE moved to Section 42.08.330, paraphrasing from the
sectional analysis [original punctuation provided]:
Sec. 42.08.330, Contract carriage certificate,
requires a certificate of public convenience and
necessity (CPCN) for a carrier to construct a pipeline
and to transport gas. The RCA has 180 days to issue a
CPCN once application is made, providing that the
applicant is found fit, willing and able to perform
the services proposed. The RCA may attach conditions
to and amend, suspend or revoke a CPCN. Operating
authority may not be transferred and service may not
be abandoned without RCA approval.
MS. DELBRIDGE elaborated that the CPCN describes the service
area and the scope of operations that are allowed. The RCA must
do a full course of fit, willing, and able if the applicant is
someone other than AGDC. She allowed the 180 days for the RCA
to issue a certificate is a tight timeline, but said it is
reasonable and the point is to not delay a project with overly
long timelines. The RCA may include terms and conditions in the
CPCN if those mutually benefit both the carrier and the public.
If a complaint about the service being provided is filed, the
RCA can modify, suspend, or revoke the CPCN if there is good
cause.
4:31:11 PM
REPRESENTATIVE JOHNSON inquired whether it is automatic approval
should the RCA not act within 180 days.
MS. DELBRIDGE responded she does not see that standard in the
bill language.
REPRESENTATIVE JOHNSON asked [what happens if the RCA does not
act within 180 days].
MS. DELBRIDGE replied she does not know how to answer the
question. In other instances in SSHB 4, she noted, the failure
to approve within a certain timeframe is inherent approval.
4:32:06 PM
REPRESENTATIVE JOHNSON inquired of the sponsor whether this is
something that should be put in the legislation because there is
no motivation for the RCA to do it unless there is automatic
approval.
REPRESENTATIVE HAWKER responded by asking Ms. Delbridge whether
the question is driven by page 45 of the bill, lines 28-29,
which state that "within 180 days after receiving an application
... a contract carriage certificate shall be issued ... if the
[commission] finds ... the applicant is fit, willing, and able
...." Regarding what happens if the RCA does not act within
that timeframe, he asked Ms. Delbridge whether page 46 of the
bill, lines 4-6, provide that if the commission fails to find
the applicant fit, willing, and able, the application must be
denied.
MS. DELBRIDGE confirmed that they do.
4:33:24 PM
REPRESENTATIVE JOHNSON expressed his concern that in a situation
where the RCA did not want to grant a permit, the commission
could stall past 180 days and it would be automatically denied.
He said he would prefer language that grants automatic approval
of the application if the RCA stalls past 180 days because he
wants to build pipelines, not give people reasons not to build
pipelines.
MS. DELBRIDGE answered there are some other instances where [the
sponsors] have incorporated that concept. Speaking for the
sponsors, she said they would like to look at doing so.
4:34:26 PM
MS. DELBRIDGE returned to the sectional analysis, closing her
review of Section 42.08.330 by stating that the rest of this
section is housekeeping. She continued paraphrasing from the
sectional analysis [original punctuation provided]:
Sec. 42.08.340, Filing requirements; public
inspection, requires an instate natural gas pipeline
carrier to file all recourse tariffs, rules,
regulations, terms and conditions pertaining to
service, and all contracts with shippers. Requires
changes in tariff rates/rules and service conditions
to be filed with the RCA.
Sec. 42.08.350, Uniform system of accounts, requires a
carrier regulated under 42.08 to maintain records and
accounts in accordance with the uniform system of
accounts.
Sec. 42.08.360, Expansion; dispute resolution, enables
contracts to provide for expansion, unless an
expansion would violate the terms of the Alaska
Gasline Inducement Act. Requires contracts to include
procedures for resolving disputes.
Sec. 42.08.370, Regulatory cost charge, implements the
standard RCA assessment of a user fee on regulated
entities; includes a cap and directs administration of
the user fee.
Sec. 42.08.380, Effect of chapter on taxes and
royalties, declares that nothing in 42.08 will change
the calculation of production taxes or of royalties
due the state.
4:35:11 PM
MS. DELBRIDGE elaborated that Section 42.08.380 is special to
SSHB 4. She said that just because the RCA and the carriers
have determined a cost of transportation, the bill does not take
away the ability of the Department of Revenue and the Department
of Natural Resources to determine their own reasonable
transportation costs for purposes of a production tax or
royalty.
CO-CHAIR SADDLER surmised Ms. Delbridge to be saying the bill is
not setting a precedent.
4:35:48 PM
REPRESENTATIVE SEATON requested clarification about whether the
pipeline would be subject to property taxes.
MS. DELBRIDGE replied that Section 42.08.380 is strictly about
oil and gas production taxes and royalty valuation of the gas.
She requested the question be held for the appropriate section.
4:36:42 PM
MS. DELBRIDGE continued her review, paraphrasing from the
sectional analysis [original punctuation provided]:
Sec. 42.08.400, Public records, requires RCA records
be available to the public, except as provided by law.
Precedent agreements will be kept confidential. Firm
transportation and other contracts will be public,
except for information that the carrier and the RCA
agree could cause competitive harm.
4:37:17 PM
REPRESENTATIVE SEATON observed there are several places in the
bill regarding public information and that it can be viewed at
the RCA or by pay copying costs. He noted, however, that almost
everything is now submitted electronically. He asked whether
this could be re-structured so that the material is required to
be provided to the public electronically.
MS. DELBRIDGE allowed that is a good point and said she will
consult with the RCA about what its existing regulations are and
whether that is already provided for. If it is not, she said
she will try to find a way to make electronic filing work.
CO-CHAIR SADDLER noted that could be added to the questions for
the RCA when it comes [before the committee].
4:38:20 PM
MS. DELBRIDGE resumed paraphrasing from the sectional analysis
[original punctuation provided]:
Sec. 42.08.410, Investigations, allows the RCA to
investigate matters in 42.08, and maintains the role
of the Department of Law's Regulatory Affairs and
Public Advocacy section.
Sec. 42.08.510, Designation of service agents,
requires an instate natural gas pipeline carrier to
file a named, permanent resident as its agent
(standard RCA provision).
Sec. 42.08.520, Effect of regulations, states that
regulations adopted by the RCA under 42.08 have the
effect of law (standard RCA provision).
Sec. 42.08.530, Judicial review and enforcement, makes
RCA final orders subject to standard RCA judicial
review, except in the circumstances set forth in HB 4,
Section 13, addressing the development, construction
and initial operation of a natural gas pipeline by
AGDC.
Sec. 42.08.540, Joinder of actions, allows appeals to
be joined under applicable court rules (standard RCA
provision).
Sec. 42.08.900, Definitions, defines terms standard to
the RCA (commission, commissioner, record) and
includes HB 4 terms (instate natural gas pipeline,
instate natural gas pipeline carrier).
4:38:56 PM
REPRESENTATIVE TARR requested further elaboration of Section
42.08.530.
MS. DELBRIDGE responded Section 42.08.530 essentially says that
final orders of the RCA are subject to judicial review, except
as provided for under AS 38.35.200, which is the place earlier
in the bill [Section 13] that limits judicial review. If an
appeal is not taken from a final order of the commission within
10 days after an investigation, the commission can apply to the
superior court for enforcement of the order of the commission.
That is essentially a standard RCA provision that lets the
commission have a little bit of an outlet for enforcing its
decisions.
4:39:46 PM
CO-CHAIR SADDLER inquired whether this issue was addressed in
the responses included in the committee packet.
MS. DELBRIDGE answered the packet should have a response from
Legislative Legal Services related to judicial review and
specifically to Representative Tarr's previous question as to
whether the legislature can limit a court's jurisdiction.
CO-CHAIR SADDLER noted that that is a February 12, [2013],
letter from Don Bullock to Representative Hawker.
4:40:40 PM
REPRESENTATIVE SEATON understood the property tax exemption
under Section 34 is only for the duration during construction
and that the private sector would need to pay property taxes
regardless of the ownership structure in a pipeline with AGDC.
MS. DELBRIDGE responded to Representative Seaton by paraphrasing
from the sectional analysis [original punctuation provided]:
Section 34 (property tax exemption) adds a new
subsection to AS 43.56.020, Revenue and Taxation, Oil
and Gas Exploration, Production and Pipeline
Transportation Property Tax, Exemptions, exempting an
AGDC-owned or financed project from state and local
property taxes during construction.
This is one way the state can help an AGDC project
succeed. Waiving property taxes for a period of time
will help keep construction costs down during a highly
risky time in pipeline development. Cost savings
during construction would be reflected in the tariffs
paid for gas shipped on an AGDC line.
4:41:44 PM
MS. DELBRIDGE continued paraphrasing from the sectional analysis
[original punctuation provided]:
Section 35 (repealer) repeals 11 statutes.
· Repeals AS 36.30.850(b)(45) Public Contracts,
State Procurement Code, Application of this
chapter, a prior exemption that applied to an
AHFC pipeline.
· Repeals AS 38.34.030, Public Land, In-State
Natural Gas Pipeline, Joint In-State Gasline
Development Team; 38.34.040, Duties of the
Development Team; 38.34.050, Cooperation and
access to information; and 38.34.060, Conflicts
of interest, all of which were part of [House
Bill] 369 in 2010 and relate to the Joint In-
state Gasline Development Team.
· Repeals AS 41.41.030, Public Resources, Alaska
Natural Gas Development Authority, Term of
office; 41.41.040, Removal and vacancies;
41.41.050, Quorum and voting; 41.41.080, Legal
counsel; 41.41.100, Budget; and 41.41.990(4),
Definitions, all related to the transition of
ANGDA [Alaska Natural Gas Development Authority]
to a marketing role and to an AGDC subsidiary.
4:43:16 PM
Section 36 (repealer) repeals Section 1 of 2002 Ballot
Measure No. 3, the findings of which are no longer
necessary with ANGDA's revised authority.
Section 37 (transition and intent) expresses the
legislative intent that the existing state right-of-
way lease between AGDC and DNR is amended to reflect
the contract carrier covenants in HB 4 (the Alaska
Constitution bars the Legislature from passing laws
that apply retroactively to contracts in place). Also
expresses intent for a smooth transition for AGDC from
its status as a subsidiary of AHFC, to an independent
corporation.
Specifically, this section includes:
· The intent is that this repositioning does not
interfere with, delay or disrupt AGDC's work.
· The intent that the governor should appoint the
new AGDC board within 90 days of the effective
date.
· The AHFC board will remain in place until a new
board is appointed; and will cooperate with the
new board in a smooth transition.
· The intent is that the transition is a change in
placement only, and will not require dissolving
AGDC and creating a new corporation.
· The intent is that AGDC, including employees and
directors, continue in-place while the boards are
transitioning. This is not explicitly stated but
rather is implied.
Section 38 is revisor's instructions
Section 39 sets an immediate effective date.
4:45:45 PM
REPRESENTATIVE SEATON drew attention to page 5, second question
and answer, of the [undated] letter to the co-chairs from
Representative Hawker [answering questions from the 2/4/13 and
2/6/13 committee meetings]. He recalled committee discussion
about timelines for release of confidential information and
noted the answer in the letter states that the bill "does not
restrict the confidentiality by time, this information may be of
public benefit once a pipeline is operational." He said what
was being looked for with the question was having timelines for
release of information that no longer needs to be held
confidential. He requested that such an answer be prepared and
brought to the committee for incorporation into the bill.
4:47:13 PM
CO-CHAIR SADDLER requested Representative Seaton to re-state
what information he is requesting.
REPRESENTATIVE SEATON read the first sentence in Representative
Hawker's answer: "HB 4 allows for certain information to be
held confidential, and does not set time limits for that
protection." However, Representative Seaton continued, the
question posed was whether a provision can be put into the bill
for releasing confidential information once it no longer needs
to be held confidential. For example, release of that
confidential information after the pipeline becomes operational
or at certain other time periods identified by AGDC.
4:48:53 PM
The committee took a brief at-ease.
4:49:05 PM
FRANK RICHARDS, Manager, Pipeline Engineering & Government
Affairs, Alaska Gasline Development Corporate (AGDC), Alaska
Housing Finance Corporation (AHFC), Department of Revenue (DOR),
, at the request of Co-Chair Saddler, responded to
Representative Seaton's question. He explained that a variety
of items would be deemed confidential, such as information in
commercial agreements, information held by third party or other
state entities that has been deemed confidential and that AGDC
would gain access to through the bill's provisions, and
information that AGDC acquires through its own work or has
contracted for that will be held confidential. As identified in
the response [on page 5], commercial terms in precedent
agreements, for example, would be released after going through
the RCA process to the extent that the individual shippers did
not hold commercial interest or wanted that to be held
confidential. A specific listing and a timeframe for when that
information will be released would be hard to ascertain at this
time. Currently, AGDC holds information that it acquired from
the predecessor of the project, ENSTAR, and that information is
held confidential by AGDC as it works this process forward until
the point of actually constructing and completing the process.
Then it will have been used by AGDC as a public entity and it
would then have gone into the public realm. When accessing
information held by another department, AGDC is unable to
control the release of that information. Mr. Richards offered
to address specific information that Representative Seaton would
like and provide a timeframe that AGDC thinks it might be able
to release it.
4:51:09 PM
REPRESENTATIVE SEATON noted that a lot of information on this
project is confidential and said he thinks the public's
confidence in the process becomes much greater if it is known
that information not required to be held confidential will be
released at some point, such as when the pipeline becomes
operational. He agreed to discuss this issue further to see if
specific areas can be identified.
MR. RICHARDS said he would be glad to talk with Representative
Seaton and with AGDC's commercial manager about which specific
commercial issues would likely be held confidential through the
precedent agreements. He added that AGDC will also be acquiring
information as a state entity that will be held as confidential
up to a certain point and, once released, will be a benefit to
the citizens of the state.
4:53:01 PM
CO-CHAIR SADDLER held over SSHB 4, saying it will be taken up
again on 3/15/13. He then recessed the meeting to a call of the
chair.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB04 Rep. Hawker & AGDC Responses.pdf |
HRES 2/13/2013 1:00:00 PM |
HB 4 |
| HB04 Legal Memo RE Judicial Review.pdf |
HRES 2/13/2013 1:00:00 PM |
HB 4 |
| HRES HB 72 EconOne Presentation.pdf |
HRES 2/13/2013 1:00:00 PM |
|
| HB04 DNR Response RE ROW Leasing.pdf |
HRES 2/13/2013 1:00:00 PM |
HB 4 |
| HRES HB 72 Econ One 2.13.13.pdf |
HRES 2/13/2013 1:00:00 PM |
HB 72 |