Legislature(2013 - 2014)BARNES 124
03/01/2013 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HCR1 | |
| HB4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HCR 1 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 4 | TELECONFERENCED | |
HB 4-IN-STATE GASLINE DEVELOPMENT CORP
1:21:55 PM
CO-CHAIR FEIGE announced that the next order of business is
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."
1:22:14 PM
REPRESENTATIVE HAWKER moved the committee adopt Amendment 1,
labeled 28-LS0021\O.9, Bullock, 2/28/13, the text for which can
be found at the end of these minutes.
REPRESENTATIVE TARR objected to Amendment 1.
1:22:36 PM
REPRESENTATIVE HAWKER explained that Amendment 1 proposes
amendments to the regulatory section of SSHB 4. Amendment 1
defines and clarifies the RCA oversight and regulatory
responsibilities with respect to an in-state natural gas
pipeline. The amendment addresses various dispute resolution
measures as well as regulation of rates of return and various
tariff matters. The committee, he noted, has been provided a
copy of Amendment 1 as well as a PowerPoint explanation that his
staff is prepared to present and there is a red-lined document
of the regulatory section in order to view Amendment 1 in the
context of the legislation as a whole. He also noted that Frank
Richards is present to answer any committee questions.
1:25:00 PM
RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State
Legislature, speaking on behalf of the joint prime sponsors of
SSHB 4, paraphrased from the presentation entitled "An Alaska
Natural Gas Future for Alaskans," which read [original
punctuation provided]:
Resolves regulatory uncertainties
•Regulatory uncertainties add risk, which adds costs
and can deter private sector participation. AGDC needs
to know how a pipeline will be regulated before
soliciting private sector partners
House Bill 4:
-Allows natural gas pipelines to operate as contract
carriers through changes to the Right-of-Way Leasing
Act and through Regulatory Commission of Alaska
oversight
-Reinforces state policy that pipelines should be
fair; offer reasonable access to new/future shippers;
and encourage future development of Alaska's oil and
gas resources
Why a contract carrier?
-Shippers need to know that the space they are
'reserving' by signing long-term commitments will be
available
-Those firm, uninterruptible contracts are the way gas
pipelines are financed
-The future income promised through those contracts
secures revenue bonds
-House Bill 4 establishes contract carrier status
while providing for expansions in the future
1:26:46 PM
CO-CHAIR FEIGE, referring to future shippers on the pipeline,
inquired as to how the sponsor proposes to accommodate future
shippers if there is a contract carrier.
MS. DELBRIDGE pointed out that although there are long-term
commitments on a gas pipeline, there might also be a series of
shorter term commitments. As those short-term commitments
expire, there are opportunities for newcomers to come on to the
pipeline. Furthermore, there is the hope that there is the
opportunity in the future to expand the capacity of the
pipeline, in which future shippers would have the opportunity to
transport gas in an expanded volume.
1:27:36 PM
REPRESENTATIVE TARR inquired as to how that expanded volume
would not be in conflict with the terms of the Alaska Gasline
Inducement Act (AGIA).
MS. DELBRIDGE answered that although the terms of AGIA place a
size capacity on the design limitations of this pipeline at an
undesignated point in the future, those terms may no longer be
in place in the future in which case the pipeline capacity could
be expanded.
1:28:14 PM
MS. DELBRIDGE, returning to the presentation, reviewed the slide
entitled "Definitions," which read [original punctuation
provided]:
Definitions
(Not official definitions … but practically speaking)
Tariff: A package of the rates and the terms and
conditions that a pipeline offers. Rates may be a
'schedule' of rates distinguishing different classes
of service.
Recourse tariff: A tariff that is kept on file as the
pipeline's official 'offering'. The recourse rate is
available to customers who do not negotiate rates with
the pipeline.
Just and reasonable: A concept; generally, just is
fair to all, reasonable is within a range of
acceptableness.
MS. DELBRIDGE added in relation to the definition of tariff that
the terms and conditions are items that govern the pipeline
operations and tend to be uniform for all shippers. Terms and
conditions might be factors such as the quality the gas has to
be to enter the pipeline, operating pressures of the pipeline,
and the billing cycle that will be used to collect from
shippers. With regard to the recourse tariff, Ms. Delbridge
characterized it as a sticker price.
1:30:19 PM
MS. DELBRIDGE then moved on to slide 5 entitled "Refresher: The
Process," which read [original punctuation provided]:
Refresher: The Process
Pipeline puts together a project
Before taking that project to the market to sign up
customers, pipeline has to develop its rates and
terms/conditions of service = the tariff
Pipeline has to file the tariff as a 'recourse tariff'
with the RCA before holding an open season to sign up
customers
Recourse tariff is the sticker price; customers can
negotiate final price
Supported by a full cost study
Amended, HB 4 would require RCA pre-approval of
recourse tariff before an open season
MS. DELBRIDGE emphasized that the recourse tariff has to be
supported by a full cost study; all the numbers of the various
elements, including the operating costs, taxes, depreciation,
and expected profit.
1:31:25 PM
MS. DELBRIDGE continued reviewing the process with slide 6,
which read [original punctuation provided]:
Refresher: The Process
With an approved recourse tariff, the pipeline holds
an open season
Pipeline negotiates rates with potential customers:
price, volume, where the gas comes into the line,
where the gas leaves the line, etc.
Once a deal is reached, the pipeline signs up
customers with a 'precedent agreement'
May include conditions the pipeline has to meet over
the next couple years
If the conditions are met, the precedent agreement
eventually becomes a firm transportation agreement
MS. DEBRIDGE explained that a "precedent agreement" is a
contract that is conditioned on a few outcomes. Once the
precedent agreement becomes a firm transportation agreement, the
terms are locked in for the length of that contract term.
1:32:15 PM
MS. DELBRIDGE referred to slide 7, which read [original
punctuation provided]:
Refresher: The Process
Negotiated contracts in an open season is one of
several ways a customer can sign up for pipeline
service
A customer could simply sign up using the recourse
rate (instead of negotiating)
Or, the pipeline and a customer could make a
'presubscription agreement' before the open season
starts - but only using the same terms/conditions
everyone else will get, and subject to the same
standard of review as all the open season contracts
1:33:04 PM
REPRESENTATIVE TUCK surmised that the pre-subscription agreement
is when consumers express interest to the pipeline company as
it's prior to an open season and prior to the recourse tariff.
MS. DELBRIDGE related her understanding that the recourse tariff
would need to be in place because the RCA would have to have
approved all the terms and conditions that go to everyone,
including the rate schedules. Once the RCA approves the terms
and before the open season starts, one can sign a pre-
subscription agreement with a customer or customers. Often
those pre-subscription agreements might be for large volume,
anchor customers. She suggested that locking up such agreements
may make the rest of the pipeline able to happen.
1:34:17 PM
REPRESENTATIVE TUCK asked what the time period is between the
recourse rate and the open season as that is the time period
when the pre-subscription agreement would occur. He further
asked whether one would be ready for the open season once the
recourse rate is set.
MS. DELBRIDGE answered that would be up to the pipeline as it
will proceed with its commercial package and build its shipper
interest as it deems fit, as would be the case with each step.
There is nothing statutorily, she clarified, that would require
any certain movement in that way.
1:35:04 PM
REPRESENTATIVE TUCK surmised then that after the recourse tariff
is established, the pipeline may not be prepared to go to an
open season for other reasons.
MS. DELBRIDGE deferred to Frank Richards of AGDC. She clarified
that she wasn't trying to indicate that they weren't prepared
but rather that they may still be working with potential anchor
tenants on pre-subscription agreements. "They will have their
time period as to go forward," she said.
1:35:36 PM
REPRESENTATIVE TUCK related his understanding, then, that once
there is a recourse tariff a pipeline company can solicit for
the pre-subscription prior to the open season.
MS. DELBRIDGE confirmed that to be correct.
REPRESENTATIVE HAWKER offered that this is business convention
in the pipeline world and is not something that is being created
for this pipeline.
1:36:48 PM
REPRESENTATIVE SEATON related his understanding that normally a
pipeline that is receiving bids would not have a limitation on
the size. He then asked whether the pre-subscription agreement
could be less than the recourse rate even if there are recourse
rate customers available at that time. He further asked whether
the pre-subscription agreement precludes customers offering the
recourse rate on the full price rather than a negotiated lower
price.
MS. DELBRIDGE explained that part of the pipeline's terms and
conditions has to include how the capacity is allocated. With
regard to other pipelines, she confirmed that generally they
would not have a limit on size that way. Furthermore, in the
Lower 48 an open season is not necessarily a requirement but
rather something many companies choose to do on a commercial
basis in order to solicit from a broad range of interested
parties. As Representative Seaton noted, if size is not
limited, then those bids could simply increase the size of the
pipeline if they so warranted.
1:39:00 PM
MS. DELBRIDGE, returning to her presentation, directed attention
to slide 8, which read [original punctuation provided]:
Refresher: The Process
After the open season, the pipeline keeps working on
design, permitting, engineering, commercial structures
And, the pipeline turns all those precedent agreements
in to the RCA
RCA needs to decide whether those agreements are 'just
and reasonable'
These contracts, once approved, cannot be changed by
anyone, including the RCA (unless the contract allows
for the contracting parties to make changes)
Disputes about the contract terms, if they arise, get
handled through a dispute resolution method that is
spelled out in the recourse tariff
1:40:38 PM
REPRESENTATIVE TUCK asked whether there would also be dispute
resolution that is written in the contracts, such that there are
two separate resolution processes.
MS. DELBRIDGE clarified that there will be one process. The
carrier can have [the dispute resolution method] in the
contract, but it must be uniform for everyone. [The dispute
resolution method] will be the same as that in the recourse
tariff so that any contractor/customer will know the process and
it will be the same process.
1:41:31 PM
MS. DELBRIDGE, continuing the presentation, moved on to slide 9,
which read [original punctuation provided]:
Refresher: The Process
Just and Reasonable - What does it mean?
Just and reasonable is a standard - in this case, a
contract must meet this standard
Just: Everyone is treated fairly and in a reasonable
way
Reasonable: Not too much, not too little: within an
acceptable range and defensible
How do we know?
Was the contract made at arm's length?
Arm's length is a legal principle pulled from contract
law. An agreement is arm's length if it was made by
independent parties, on equal footing; if parties are
connected by 'shared interests', an arm's length
agreement that stands up to scrutiny is important.
1:42:22 PM
MS. DELBRIDGE then referred to slide 10, which read [original
punctuation provided]:
Meeting the Arm's Length Standard
Start with the contract. Does it include the recourse
rate offered to everybody?
YES: Contract is at arm's length and acceptable.
NO: Next step: Was the contract made between two
state entities?
YES: Contract is at arm's length and acceptable.
NO: Next step. Is the contract between two
unaffiliated parties?
YES: Contract is at arm's length and acceptable.
NO: Parties are affiliated. Next step: Is the
contract 'substantially similar' to one made
between unaffiliated parties?
YES: Contract is at arm's length and acceptable.
NO: Next step. Triggers deeper review by the RCA
to determine 'just and reasonable' by new
standards, using all cost data, digging into the
details - BUT, the RCA must also consider the
consequences of failing to approve the contract
at hand.
1:43:47 PM
REPRESENTATIVE TUCK related his understanding that this pipeline
would not be considered a state agency.
MS. DELBRIDGE responded that AGDC would be a state entity, and
noted that this applies to any pipeline that applies under this
chapter.
REPRESENTATIVE TUCK surmised then that it does not have to be a
state entity and that some other organization could be formed
and follow the same standards of SSHB 4.
MS. DELBRIDGE replied yes, and pointed out that this regulatory
chapter applies to any contract carrier, natural gas pipeline.
1:44:34 PM
MS. DELBRIDGE, returning to the presentation, moved on to slide
11, which read [original punctuation provided]:
Refresher: The Process
Once construction ends, the pipeline will know a lot
more detail about costs
At that point, the pipeline has to go back to the RCA
with that 'actual' information, and update the old
'recourse tariff' that was based on estimates (HB 4
amended)
The pipeline also has to update the recourse tariff in
the future, whenever the pipeline plans an open season
to expand the pipeline or to ask for customers for
capacity if extra space becomes available (HB 4
amended)
1:45:33 PM
REPRESENTATIVE HAWKER, returning to Co-Chair Feige's earlier
question regarding how SSHB 4 accommodates future shippers,
specified that it is part of the legislation and is not part of
Amendment 1, which is clarifying the original legislation. He
then directed the committee's attention to page 43 of SSHB 4
that creates a new regulatory section, AS 42.08.300(d), which he
said is essentially a mandatory consideration of expansion.
However, due to the constrained economic environment caused by
the state's contractual obligations under AGIA, proposed AS
42.08.300(d) also recognizes that no expansion of the pipeline
can be considered if it is a competing natural gas pipeline
under the terms of AGIA.
1:47:25 PM
REPRESENTATIVE TARR asked whether there is a threshold that
would then require the open season to begin.
REPRESENTATIVE HAWKER said that it is stated in the
aforementioned statute.
REPRESENTATIVE TARR opined that it does not make it clear what
portion of the capacity would be left available to trigger the
[open season].
MS. DELBRIDGE surmised the question is regarding how much
interest does there have to be to warrant an open season for an
expansion. The language currently reads if one has "a
commercially viable expansion opportunity." She explained that
a pipeline knows what reasonable increments in which it can
expand based on compression and engineering. She further
explained that a company that wants to ship a very small volume
of gas on the pipeline will likely not be enough on its own to
warrant an expansion. However, several entities could trigger
an expansion; it needs to be a commercially reasonable
proposition.
1:48:47 PM
REPRESENTATIVE SEATON, regarding the RCA with actual information
and the recourse tariff that includes the rate of return,
recalled that there have been problems with other gaslines in
the state such that funds provided by municipalities or other
entities is rolled into the base and thus the rate of return is
structured on funds that were not actually invested by the
company. In this case, there could be a state contribution or
other contributions of funds that were not borrowed and were not
paying an interest. He then asked whether the legislation
includes language to ensure that such an extra contribution of
money by the state or another entity not be included in a rate
of return calculation.
MS. DELBRIDGE answered that any contribution of cash or equity
is something regulatory bodies expect one needs to earn a return
on. For example, a private entity that is part-owner of the
pipeline that provides a certain amount of equity in exchange
for some debt to finance will expect and is entitled to an
allowable rate of return on that. If the state provided funds
directly to [the pipeline], the legislature would have to decide
whether it was a direct subsidy on which there was no
expectation of a return or whether there was the desire to
restrict the use of the funds at that point in time to areas
that would directly lower the rate without needing a rate of
return on that.
1:51:33 PM
REPRESENTATIVE SEATON remarked that normally he would not think
this is something that would need to be considered, except that
there has been a problem with a gas entity that has received
contributions in aid of construction from those to whom it is
supplying gas. Although that value is not put forward by the
gas company, it is rolled into [the gas company's] value on
which it earns a rate of return. He expressed the need to
ensure there is not this glitch going forward. Representative
Seaton further expressed the need to ensure that the pipeline
company cannot include in the [rate of return] calculation
anything that finances the pipeline such that the pipeline
company has to pay a rate of return or it is their money that is
provided, or if for some reason there is a contribution in the
aid of construction that is not getting a rate of return.
MS. DELBRIDGE said she has noted Representative Seaton's
concern.
1:53:06 PM
REPRESENTATIVE HAWKER, as a joint prime sponsor of SSHB 4,
characterized this as a policy call for the legislature. On
page 10 of SSHB 4, proposed AS 31.25.090(c) incorporates a
policy call that state entities need to provide to the pipeline
natural resources that are at the state's disposal and those may
not be included in a rate base proceeding under AS 42.
Representative Hawker stated he is not comfortable at this time
with a policy call that automatically disqualifies the state
from earning a rate of return on investment should the state
wish to financially contribute to the pipeline project. He
opined that it's an appropriation decision, an investment
decision, the parameters of which should be debated on its
merits at a future time rather than now. He reminded the
committee that SSHB 4 is more than just a single pipeline
project rather it provides the state with the resources
necessary to participate in any pipeline project that becomes
viable under any manner that's appropriate for the state. "It
may very well be appropriate for the state to be earning a rate
of return on an investment if we take a stake through AGDC or
through financial investment by the state, in a pipeline that's
largely owned or controlled by others as well," he said.
Representative Hawker said that it is not an oversight but
rather a policy decision that the committee must make.
REPRESENTATIVE SEATON clarified that he was not suggesting that
the committee make a policy call that the state should or should
not earn a rate of return. However, there is a situation in
which funds paying for pipelines that is in aide of
construction, which is required to be provided by other parties,
is rolled in as if an investment by the pipeline. He reiterated
the need to ensure there is not a "RCA glitch."
1:56:57 PM
MS. DELBRIDGE, returning to her presentation, began review of
Amendment 1 itself as related on slide 12, which read [original
punctuation provided]:
Amendment:
1. Significantly increases the RCA's role in resolving
disputes, offering better accountability to potential
shippers; the public; and interested parties
2. Ensures that all parties with shipping contracts
and potential shippers have an opportunity to
participate in disputes not directly involving them
3. Protects against the potential of 'runaway' rates
of return, making the pipeline more accountable to
customers and ratepayers
4. Amplifies the role of the recourse tariff by adding
substantial RCA review, creating a more accountable,
open and fair process for shippers, future shippers,
related customers, and ratepayers
1:58:18 PM
REPRESENTATIVE JOHNSON inquired as to whether the process used
by the RCA to set the recourse rate is standard. He further
inquired as to whether there is an opportunity to set a recourse
rate that might not be attractive enough or cause balking. Will
the RCA, he asked, have enough information to set a reasonable
[recourse rate] that works.
MS. DELBRIDGE confirmed that is a concern the sponsors have had
as well. Under Amendment 1 the RCA would not be allowed to set
a rate. The carrier, she explained, proposes the recourse
tariff, including the rates, and the RCA reviews those in terms
of whether the rate elements are within a reasonable range. The
RCA also reviews the terms and conditions to ensure they are not
unduly discriminatory. The RCA does not actually get to set
those rates. She agreed with Representative Johnson that the
carrier going into an open season will use estimated data.
However, the data has to be proved up fairly well because it is
the data and rates that are being taken to the commercial
parties/interests. Therefore, the data will have to stand up to
the scrutiny of those who promise 20 years of contracts in the
pipeline.
2:00:08 PM
REPRESENTATIVE JOHNSON recalled that Ms. Delbridge had testified
earlier that the RCA must set the recourse tariff prior to an
open season. He inquired as to whether it would be more
accurate to say the RCA approves a rate brought by the pipeline.
MS. DELBRIDGE replied yes, the RCA needs to approve or disprove
a rate and does not set [the recourse tariff].
REPRESENTATIVE JOHNSON remarked that he is more comfortable with
that situation.
2:00:38 PM
REPRESENTATIVE TUCK inquired as to whether it would be a failed
open season if an open season is not commercially viable for
some and they are lower than the approved recourse tariff.
MS. DELBRIDGE surmised that Representative Tuck is inquiring as
to what happens if the recourse tariff is not affordable to
certain customers. The recourse tariff is the "sticker price,"
and thus if the pipeline wants customers, it will have to put
forth a defensible recourse tariff that is a true representation
of what it will cost to build and operate the pipeline with a
reasonable rate of return on the investments. There is not a
lot of room to reduce the recourse tariff without reducing the
operating and construction costs. The expectation is that the
pipeline has a recourse tariff, but potential shippers negotiate
the rate at which they will sign a contract. Therefore, it is
unlikely to be that "sticker price," she said.
2:02:03 PM
REPRESENTATIVE TUCK asked then whether it is unlikely that the
pipeline would sign anything less than the recourse tariff.
MS. DELBRIDGE specified that it is likely that the pipeline
would sign contracts with rates less than the recourse rates,
although there is nothing that specifies that it has to be
lower. There may be someone who may be willing to pay more for
certain volumes or to get gas in at a place on the pipeline that
is difficult for the carrier and is going to cost more. The
aforementioned are negotiable.
2:02:35 PM
REPRESENTATIVE TUCK inquired as to whether there is a floor with
the negotiated price.
MS. DELBRIDGE responded that there has to be a floor because the
pipeline knows what it needs to charge in order to provide the
service.
REPRESENTATIVE HAWKER reminded the committee that this is in the
context of an initial open season for any pipeline. The open
season, he stated, is about obtaining the long-term commitments
from potential shippers that are taken to the financial
marketplace, which thoroughly scrutinizes the project. The
floor is clearly established by the markets should someone
approach them with an unreasonable request for financing.
2:04:14 PM
REPRESENTATIVE TARR, referring to slide 11, pointed out that
this is addressing the point at which the pipeline is built and
actual construction costs and other costs are known. She then
inquired as to what would happen in a situation in which
construction was delayed for a natural disaster and ultimately
the costs were substantially more expensive because of the
delay.
MS. DELBRIDGE related that the force majeure provision, which
most of these contracts include, would address a large disaster
causing massive problems such that the deals are off. The
contracts also tend to include an allocation of risk and
responsibility for cost overruns in construction.
2:05:50 PM
REPRESENTATIVE TARR surmised then that prior to making
adjustments to the recourse rate prior to an open season, the
new customers would likely be under the new rate that may be
higher than the original rate.
MS. DELBRIDGE specified that the revised recourse tariff prior
to an open season would be the most current and accurate
reflection of the real operating costs of the pipeline.
2:07:05 PM
MS. DELBRIDGE, continuing her presentation, turned attention to
the dispute process as related on slide 13, which read [original
punctuation provided]:
Amendment: Disputes
1. Contracts between shippers and a pipeline can
include a dispute resolution method
2. If so, the method must be included in the
pipeline's recourse tariff (terms and conditions of
service)
3. A dispute resolution method must:
-Notify all shippers of a dispute
-Result in a process determined by an independent
third party/panel
-Allow existing shippers and creditworthy
potential shippers to participate
-Participants must meet the RCA's standards
for intervention
2:08:17 PM
REPRESENTATIVE JOHNSON asked whether the participants that must
meet the RCA's standards for intervention include external third
parties to the contract.
MS. DELBRIDGE clarified that the participants have to be
existing shippers with the contract or creditworthy potential
shippers that have requested pipeline capacity. She reminded
the committee that this is referring to contractual disputes.
2:08:58 PM
MS. DELBRIDGE, resuming her presentation, referred to slide 14,
which read [original punctuation provided]:
Amendment: Dispute resolution, con't.
When can the RCA step in?
1. Disputes related to things that are not subject to
contractual dispute resolution methods (catch-all)
2. Complaints brought by someone who doesn't have a
contract with the pipeline
3. Complaints about the way an open season is
conducted
4. Disputes that cannot otherwise be resolved that
involve a public utility and would result in an
immediate threat to the public health and safety
MS. DELBRIDGE noted one substantial caveat with disputes is that
the RCA can intervene and address those disputes involving a
public utility receiving gas when it would result in the
immediate threat to the public health or welfare. There is no
desire to allow a contractual dispute to result in a power
utility in Fairbanks, say, not getting the gas it needs.
2:10:03 PM
REPRESENTATIVE TUCK related his understanding that there does
not have to be a dispute resolution when there is a dispute
between two parties; they can use the courts to resolve the
dispute.
MS. DELBRIDGE explained that the carrier has the option to
provide by contract a dispute resolution method. If the carrier
chooses to do so, it has to be included in all of the contracts.
The carrier [through Amendment 1] is being given the option
upfront. She noted that theoretically, the carrier could decide
it wants the RCA or the courts to adjudicate everything, in
which case it has to go into the recourse tariffs and the
contracts. Therefore, it essentially becomes one of those terms
and conditions of service that does not get to change between
parties.
2:11:54 PM
REPRESENTATIVE TUCK requested that Ms. Delbridge make note of
those sections as she continues her review.
MS. DELBRIDGE, per Representative Tuck's request, pointed out
that the resolution process is located on page 1, line 13,
through page 2, line 13, as well as on page 7, lines 16-28, of
Amendment 1.
2:13:05 PM
REPRESENTATIVE JOHNSON asked whether dispute resolution will
hold up a deal because of the various ways in which it can be
handled.
MS. DELBRIDGE answered that generally speaking, everyone just
wants to know that there is a method for disputes.
REPRESENTATIVE JOHNSON said he just wanted to ensure that
provisions are not included in SSHB 4 that could potentially
cause discomfort.
MS. DELBRIDGE related that although AGDC has helped craft this
language and the language is acceptable to AGDC, she offered to
raise that issue with AGDC.
REPRESENTATIVE JOHNSON noted that AGDC will not be shipping any
gas.
2:15:14 PM
MS. DELBRIDGE, in response to Representative Tarr, related her
understanding that she is referring to a situation in which the
initial recourse tariff is approved and the precedent agreements
become firm transportation agreements there is a revised
recourse tariff. She further understood Representative Tarr to
be asking whether [at the point of having the revised recourse
tariff] a new dispute resolution can be negotiated. In
response, Ms. Delbridge explained that the contracts are final
for all the shippers, and thus everything stands. To materially
change a term or condition of service that impacts other
shippers on a pipeline that is to substantially amend a
precedent agreement, one would need to go before the RCA and
justify why it is necessary to change the terms and conditions
being offered.
2:16:50 PM
REPRESENTATIVE OLSON inquired as to whether portions of the
Trans-Alaska Pipeline System (TAPS) contract language has been
included this.
MS. DELBRIDGE deferred to Tina Grovier, contract attorney to
AGDC who has a specialty in regulatory matters, and thus helped
with a number of the elements that are included in this section.
2:18:50 PM
TINA GROVIER, Contract Attorney, Alaska Gasline Development
Corporation (AGDC); Shareholder, Birch Horton Bittner & Cherot,
related her understanding that the [dispute resolution] language
was not taken from TAPS or existing statutory language but
rather was created to address a specific point.
2:19:32 PM
MS. DELBRIDGE, returning to her presentation, directed the
committee's attention to slide 15, which read [original
punctuation provided]:
Amendment: Excessive rates of return protection
Excessive rates of return are not anticipated,
however:
Every three years the carrier has to submit a detailed
cost study to the RCA
-Actual, current costs, within 90 days of the close of
the pipeline's annual accounting period
-Report has to include a calculation of the three-year
average actual return on equity
2:20:33 PM
MS. DELBRIDGE moved on to slide 16, which read [original
punctuation provided]:
Amendment: Excessive rates of return protection,
con't.
• The RCA must review the cost study and verify if the
rate element 'actuals' are the same as the RCA
previously approved [recourse tariff]
• If the elements do not match, the RCA requires a
corrected report
• If there is more profit than allowed per the approved
rate of return, the excess has to go into a segregated
operating reserve fund
• The pipeline has to keep putting excess into the
fund, until the fund hits 20% of the annual average
operating costs of the pipeline
• Once the fund is full - 20% - the pipeline uses any
remaining excess to reduce the firm service rates for
all shippers in the next 3-year period
• The pipeline can draw on these reserves in three-year
periods in the future when operating costs are high
and result in a shortage of rate of return
2:22:25 PM
REPRESENTATIVE P. WILSON asked what occurs in a scenario in
which the [shippers] make less.
MS. DELBRIDGE reminded the committee that the rate of return is
not a guarantee rather it is an opportunity to earn it in terms
of managing the business well and keeping operating costs under
control. Therefore, if the pipeline did not receive the rate of
return it desires, then it likely needs to operate in a
different way.
2:23:27 PM
REPRESENTATIVE TUCK, referring to the requirement for the
pipeline to maintain a segregated operating reserve fund,
related his understanding that [the pipeline] is not susceptible
to the volatility of gas pricing as that will be based on how
much the pipeline is able to efficiently run the operating
portion of the transportation of the gas.
MS. DELBRIDGE indicated agreement that Alaska is so separate
from other gas markets that it tends not to be dramatically
impacted by them. She noted that the [pipeline's] operating
gas will likely be for something for which they have contracted
for a length of time.
2:24:37 PM
MS. DELBRIDGE, continuing the presentation, moved on to slide
17, which read [original punctuation provided]:
Amendment: Recourse tariff
Previously, required the pipeline to file a recourse
tariff in advance of an open season; an open-to-all-
comers sticker price
Now, RCA must use a pipeline's cost study to review
and approve a recourse tariff
Heightened scrutiny
Standard of review: not unduly discriminatory (fair)
The recourse tariff must include the procedure for
conducting open seasons
2:25:45 PM
MS. DELBRIDGE, referring to slide 18, explained that with
Amendment 1, a recourse tariff would have to be filed before the
first open season for a new pipeline; after construction, a
revision will have to be filed; and a revision would also have
to be filed in advance of any open season for new capacity or
pipeline expansions. She reminded members that the recourse
tariff is the sticker price and these are the terms that anyone
has the option of using to get in on the pipeline, regardless of
whether they want to negotiate. With the recourse tariff
everyone has the opportunity to get in on the pipeline on the
same terms. She then noted that the recourse tariff is commonly
used for short-term interruptible capacity, when available.
2:26:44 PM
REPRESENTATIVE TARR asked whether there would be an opportunity
to negotiate above the recourse rate for short-term capacity of
the pipeline.
MS. DELBRIDGE answered that such capacity is generally going to
be short-term capacity and it is in the pipeline's interest to
have someone using available capacity. A long-term contract
would be firm uninterruptible service and one would likely
negotiate below the recourse tariff.
2:28:00 PM
REPRESENTATIVE JOHNSON posed a scenario in which shipper A is
committed to a specific amount of gas and shipper B has to shut
down, and asked whether shipper A could take on [that capacity
left by shipper B] at a recourse rate because [shipper A] has an
opportunity overseas. Current shippers, he said, will take
advantage of excess capacity. He inquired as to how it would
work.
MS. DELBRIDGE responded that volume of an existing contract
would not guarantee that space because the terms have already
been negotiated and it is not a fair opportunity to
automatically grant through negotiations any excess space to any
one person. Therefore, the contract will be for a set volume.
In the existing regulatory framework when there is excess
capacity, the pipeline would need to notice it so that those
interested in shipping it can do so. She noted that Lower 48
pipelines commonly use an electronic bulletin board that posts
available capacity and its details.
2:29:27 PM
REPRESENTATIVE JOHNSON clarified his scenario as one in which
shipper A has a rate below the recourse rate, for a certain
volume. In such a situation in which a certain volume becomes
available, he asked whether any additional gas shipped to fill
the excess capacity would fall under the recourse rate or the
contract rate [of shipper A]. He asked if Ms. Delbridge is
saying that [shipper A] is not guaranteed a rate, regardless of
volume.
REPRESENTATIVE HAWKER stated that the discussion is moving into
the area of how pipelines operate in general and the interplay
of contract law. Ultimately, a pipeline is an assemblage of
contracts between commercial parties who then go forward, build
a pipeline, and move gas through it. He emphasized that one
must remember that these long-term anchor contracts are "take or
pay" contracts, such that if a shipper does not meet its
shipping commitment it still pays the pipeline as if it shipped
all the gas it had to ship. He explained that how the lack of
gas in the pipe or ullage is filled and managed is part of the
terms and conditions in the precedent agreements with all the
parties; the commercial agreements that underpin the operations
which are determined between the various parties to the
pipeline.
2:31:47 PM
REPRESENTATIVE JOHNSON remarked that he was looking at an
opportunity for profit. He clarified that he was looking at a
situation in which a shipper on the pipeline does not fulfill
his shipping commitment but will pay the pipeline per the
shipping commitment. In such a situation would someone wanting
to use that available capacity do so under the recourse rate or
their current rate.
REPRESENTATIVE HAWKER reiterated that the ullage management
would be in the terms and conditions of precedent agreements
that ultimately become firm transportation agreements.
2:32:30 PM
REPRESENTATIVE JOHNSON asked whether under RCA rules there is
the capability for one shipper to say he will fill in for
another shipper in order to avoid the process.
REPRESENTATIVE HAWKER remarked that Representative Johnson has
posed a good question. If a shipper finds itself unable to meet
its obligations and has to pay for them, the shipper is likely
to attempt to acquire the necessary gas in order to fulfill
shipping commitments. However, the gas would be acquired under
a separate contractual agreement outside of selling pipeline
capacity. Representative Hawker reminded members that what an
individual shipper wants can be negotiated at the front end of
the contractual process.
2:33:54 PM
REPRESENTATIVE JOHNSON commented that some of these problems
won't be foreseen, and inquired as to whether RCA approval would
be required. In response to Representative Hawker,
Representative Johnson agreed that he would like to sell the
space twice.
REPRESENTATIVE HAWKER characterized these issues, in the
contracting and business world, as the known unknowns, which he
said are common. He offered to provide the committee with more
information regarding how pipelines operate.
2:35:06 PM
REPRESENTATIVE JOHNSON related that he would like to keep the
RCA out of it and ensure that nothing in Amendment 1 forces RCA
involvement in the negotiations of private parties.
MS. DELBRIDGE stated that there is nothing that lets the RCA
have involvement in the negotiations that private parties
conduct.
2:36:03 PM
MS. DELBRIDGE, resuming her review of Amendment 1, paraphrased
from slides 19-21, which read [original punctuation provided]:
Amendment: Recourse tariff, con't.
Review process:
RCA must review and approve initial recourse tariff,
and any substantial amendments
1. Terms and conditions may not be 'unduly
discriminatory'
2. Rates need to be supported by an accompanying cost
study
RCA looks at rates and, weighing the risks of the
particular pipeline, looks at:
1. Is the proposed rate of return within a reasonable
range per recent FERC decisions?
2. Does the cost model incorporate a reasonable
depreciation method and economic life?
3. Does the cost model use a reasonable capital
structure?
RCA can deny recourse tariff; RCA must rule on a
recourse tariff within 30 days
What is "reasonable?"
These elements are reasonable if they are "commonly
accepted or used by the commission or the Federal
Energy Regulatory Commission"
- Same review process, standards, apply for recourse
tariff revisions in the future
- Rate elements previously ruled 'reasonable' now have
to match what the RCA initially allowed
- RCA shall deny recourse tariff revisions if
terms/conditions are unduly discriminatory
- RCA shall deny recourse tariffs if they do not
include the previously approved rate element values,
unless the pipeline can prove the new element is just
and reasonable
- For recourse tariff revisions, the RCA has 90 days
to act
2:38:20 PM
REPRESENTATIVE JOHNSON inquired as to what happens [to the
recourse tariff revisions] at the end of the 90 days if RCA does
not act.
REPRESENTATIVE HAWKER interjected that he has another amendment
that will address some of these concerns.
MS. DELBRIDGE directed attention to subsection (c) on page 5 of
Amendment 1, which read:
(c) Unless a recourse tariff is denied because it
includes a proposed term or condition of service that
is unduly discriminatory or includes a proposed rate
element that does not comply with (b) of this section,
the commission shall approve the initial recourse
tariff. If the commission does not issue its ruling
within 30 days, the initial recourse tariff filing
shall be considered approved.
2:39:47 PM
CO-CHAIR FEIGE inquired as to why there is such a difference in
the timeframe for the RCA to act as it has 90 days to act on the
recourse tariff revision versus 30 days to act on the original
decision.
MS. DELBRIDGE reminded the committee that on the initial
recourse tariff estimates are being used while the
future/revisions of the recourse tariff use actuals. Therefore,
there is less of a need to delve too deeply into the estimates
whereas when the actuals are available there is more to explore.
In response to Representative Tuck, Ms. Delbridge confirmed that
regardless of the reason if the RCA does not act within 30 days
[on the initial recourse tariff], then it is automatically
approved.
2:41:02 PM
MS. DELBRIDGE, returning to the presentation, directed attention
to slide 22, which read [original punctuation provided]:
Amendment: Overall
1. Because the amendment creates a significant review
and approval process for the recourse tariff, the
recourse tariff becomes more important
2. So, the amendment has some pieces where the
recourse tariff plays a greater role; for example, the
tariff must include procedures for holding an open
season, and the recourse tariff will be the 'official'
record of the pipeline's offering (rates,
terms/conditions)
3. Also, some housekeeping: giving the RCA greater
latitude (similar to other regulatory chapters) to
investigate; to access pipeline accounts, financials
and records;
4. And, as we've directed the RCA to clearly 'do' some
things in relation to the recourse tariff, we go back
into the 'General Powers and Duties' to be clear on
the boundaries of the RCA's powers
2:42:15 PM
MS. DELBRIDGE pointed out that this can be found on page 2, line
17, of Amendment 1. While the RCA was told that a carrier has
to make a recourse tariff filing at certain points, the language
also says that the RCA cannot otherwise make them do such a
filing. Therefore, the RCA cannot go beyond what has been
specified and try to make other things happen. Ms. Delbridge
said that is a review of Amendment 1 in a conceptual light and
offered to answer any questions.
2:43:21 PM
REPRESENTATIVE TUCK inquired as to who approves a contract as
referred to in Amendment 1 on page 2, lines 25-26, which read:
(4) conduct further review or investigation
of a contract that is approved, considered approved,
or filed under this chapter."
MS. DELBRIDGE said that is the RCA's general powers and duties
piece, and thus it would be the RCA that had to have approved or
would have been "considered approved" if it was a situation in
which the RCA failed to act. In further response to
Representative Tuck, Ms. Delbridge clarified that this is the
general powers and duties and it tells the RCA that, except for
the things that the chapter tells the RCA it can approve, it
cannot delve back into those things that it has already
approved.
2:45:00 PM
REPRESENTATIVE TARR, regarding ullage and Representative
Johnson's hypothetical scenario, asked whether when a contract
including a provision [that allowed shipper A to help shipper B
meet its ullage] would mean that there would not be an open
season because the capacity would be met.
MS. DELBRIDGE explained that individual shippers will have
individual contracts with the carrier. Therefore, shipper A
giving to shipper B would not necessarily be part of the
relationship between the carrier and either of the shippers,
unless the two shippers have an agreement otherwise. [Such an
agreement] is not part of the pipeline transport but rather is
part of the production and sale of gas prior to entering the
pipeline.
2:46:13 PM
REPRESENTATIVE TARR surmised then that it would not be in the
original terms and conditions of the original recourse tariff as
to how capacity issues are met should there be a situation in
which capacity is not met by one of the contracts.
MS. DELBRIDGE clarified, with regard to ullage, that it is in
everyone's interest to maintain certain volumes. Therefore, the
carrier is going to have terms as to how they will handle that.
However, one company getting more gas to another is something
that happens prior to it even going into the pipe. Furthermore,
because it is not a contract with the pipe for shipment, it
would not be relevant to those.
2:47:22 PM
REPRESENTATIVE TUCK noted his objection to Amendment 1. He then
directed attention to the change on page 3 of Amendment 1 that
would on page 42, line 28, delete "proposed" and insert
"approved". He pointed out that line 28 includes the term
"proposed" twice, and therefore he inquired as to the intent of
that change.
MS. DELBRIDGE explained that the precedent agreement will not
have been made yet, and thus one will use a proposed form
whereas the recourse tariff needs to be approved prior to the
open season during which the precedent agreements would be made.
Therefore, page 42, line 28, of SSHB 4, would be amended to
read: "contain the approved recourse tariff, the proposed form
of the precedent agreement,".
REPRESENTATIVE TUCK suggested then that the change to page 42,
line 28, in Amendment 1 should specify that the "proposed" being
deleted is following the language "contain the".
MS. DELBRIDGE concurred that only the first "proposed" on page
42, line 28, of SSHB 4 is to be replaced with "approved".
REPRESENTATIVE HAWKER interjected that having this clarification
on the record should suffice for Legislative Legal Services when
it incorporates Amendment 1 into SSHB 4.
2:50:16 PM
REPRESENTATIVE TUCK then directed attention to the following
change proposed in Amendment 1:
Page 43, line 27, following "basis":
Insert "and may be levelized over the
depreciation life of the pipeline"
REPRESENTATIVE TUCK recalled discussion regarding having a
three-year average in determining the 20 percent that can be
held in reserve, anything above that can be returned. He
related his understanding that [the language being inserted on
page 43, line 27] applies to that. He inquired as to what the
language actually means.
2:51:57 PM
MS. DELBRIDGE began by stating that this provides the carrier
the option to levelize rates over the depreciation life of the
pipeline when the carrier determines its capital structure. For
further response, she deferred to AGDC staff.
2:52:43 PM
DARYL KLEPPIN, Manager, Commercial Team, Alaska Gasline
Development Corporation, explained that the language allows for
levelized tariffs in the recourse tariff, which is determined
prior to the open season and after the actual costs are known.
Those levelized costs are primarily around the capital structure
that is how much equity and debt one has. There will always be
a slight variation with the operating costs because those aren't
precisely known until the pipeline is operating. Therefore, the
costs aren't completely flat over the course of the 30 years but
mostly flat with small variations around operating costs. He
echoed Ms. Delbridge's comment that the aforementioned is an
option not a requirement for the carrier.
2:53:39 PM
REPRESENTATIVE TARR inquired as to whether 30 years is the
standard time period used as the depreciation life of the
pipeline.
MR. KLEPPIN answered that for its project and update, that's the
term AGDC has used for the pipeline for depreciation. He
acknowledged that the pipeline may have an economic life that
goes beyond 30 years.
2:54:16 PM
REPRESENTATIVE TUCK directed attention to page 4, lines 8-13, of
Amendment 1 and inquired as to why the language "Rules,
regulations, terms, and conditions not included in the tariff of
an in-state natural gas pipeline carrier shall be included in
the contract with each shipper."
MS. DELBRIDGE explained that if everything goes into the
recourse tariff, then there should be no additional terms and
conditions left to be negotiated.
2:56:56 PM
REPRESENTATIVE TUCK returned to the issue of what's included in
the dispute resolution.
MS. DELBRIDGE pointed out that page 7 of Amendment 1 discusses
what a contractual dispute mechanism looks like.
2:58:06 PM
REPRESENTATIVE TUCK surmised that the language on page 7, lines
24-28, of Amendment 1 permits the participation of existing
shippers and creditworthy potential shippers that make a good
faith request, but does not require them to go into dispute
resolution. He recalled that a pipeline company that has
contracts that include dispute resolutions requires that all the
[shippers] have the same dispute resolution in their contracts.
However, the aforementioned new language being inserted by
Amendment 1 to page 47, lines 30-31, of SSHB 4 would merely
permit the participation of existing shippers.
MS. DELBRIDGE clarified that the language permits the
participation of existing shippers in a dispute someone has with
the pipeline. Therefore, at least they have an opportunity to
step in and defend their interests in the pipeline in relation
to the dispute.
REPRESENTATIVE HAWKER interjected that this is a "context of the
whole" issue. Therefore, one must consider the language in
terms of the subsection under which it falls, which read: "(b)
The recourse tariff or a contract filed by an in-state natural
gas pipeline carrier may include a dispute resolution procedure.
A dispute resolution procedure shall". Therefore, a recourse
tariff or a contract may include a dispute resolution. If there
is a dispute resolution, it must include the items specified in
numbers (1)-(3). He pointed out that although number (3) uses
permissive language, it falls under subsection (b) that requires
a dispute resolution procedure to include numbers (1)-(3) if the
recourse tariff includes dispute resolution.
3:02:04 PM
MS. DELBRIDGE, in response to Representative Tuck, confirmed
that the dispute resolution process would have to permit/allow
the participation. The participation of other parties is not
required, but those who might be affected by a dispute with one
contracting party have to be allowed to represent their
interests in that.
REPRESENTATIVE TUCK surmised then that the pipeline companies
are required to offer [a dispute resolution process], but not
every contract is required to have it. Therefore, if one
contract has [a dispute resolution procedure], then they are
required to offer it but it does not necessarily mean they have
to have it in each contract.
MS. DELBRIDGE pointed out that there is the dispute resolution
process that is laid out versus the management of that process.
Therefore, the process is there for everyone. There can be a
requirement that people sign a contract that has dispute
resolution [procedures], but one cannot require someone's
involvement in any dispute that arises under that dispute
resolution process. For example, if two parties have a dispute
and another interested party in the pipeline fears his/her
interest may be impacted by how the two parties in the dispute
resolve the dispute, the process in contract for resolving
disputes must allow that other interested party to have the
opportunity to participate.
3:04:08 PM
REPRESENTATIVE SEATON directed attention to the proposed change
on page 3, lines 19-20, of Amendment 1, and pointed out that
were it to be adopted the language in SSHB 4 on page 43, lines
30-31, would read, "An in-state natural gas pipeline carrier may
contract to provide firm transportation service on terms and
conditions and for rates different than those in the recourse
tariff." Although he understood that the recourse tariff would
have the terms and conditions that were offered to all, this new
language would seem to allow contracts with different terms and
conditions to be offered than those in the recourse tariff.
MR. KLEPPIN commented that typically when people discuss "terms"
they refer to "terms and conditions". Therefore, the language
"and conditions" was added for consistency. Since there will be
slightly different terms and conditions, tariff rates, between
different classes of shippers, fundamentally the key terms and
conditions will be the same in all contracts. There are
variations when one does not "unduly discriminate." He noted
that there would be differences in off-take points and etcetera,
which would be differences in terms and conditions but would not
unduly discriminate.
3:07:31 PM
REPRESENTATIVE SEATON related his understanding that the tariff
was going to have a schedule of rates that would take into
account those different classifications. He related his further
understanding that those terms and conditions would be there for
everyone. However, the proposed change on page 3, lines 19-20,
of Amendment 1 seems to say maybe that is not the case, which is
of concern.
MS. DELBRIDGE explained that the terms and conditions do have to
be reviewed by the RCA as not unduly discriminatory. Therefore,
Mr. Kleppin is correct that a different class of service may
have slightly different rules. However, the point is that under
the recourse tariff one sees what different classes are going to
have. Furthermore, in order to not be unduly discriminatory one
would have to have a reason and explain why there would be
something different given to one group than another. For
example, one could have customers with different seasonal
demands than most of the other customers.
REPRESENTATIVE HAWKER interjected that the addition of "and
conditions" on page 43, line 31, following "basis" is technical.
3:10:02 PM
REPRESENTATIVE SEATON clarified that he is not concerned with
the rates because he understands they are going to be
negotiated. In subsection (b) on page 43, lines 25-29, of SSHB
4, the firm transportation service for the recourse rates is
being set. However, subsection (c) then says that firm
transportation will be offered on terms and conditions at
variants to the recourse rate schedule that is to apply to
everyone.
MS. DELBRIDGE said that Representative Seaton is correct and
perhaps the language "conditions" was inserted in a place where
language other than "terms" should have been used. There are
terms and conditions of pipeline operations that should not
change, such as quality of gas standards and accounting
procedures, and then there are rates that can vary across
shippers. Mr. Kleppin spoke to other factors that influence the
rate, such as volumes and where the gas comes in and goes out.
There are also terms that might be part of a negotiated contract
that are not part of this "terms and conditions", such as when a
shipper needs transportation service. Therefore, she questioned
whether this proposed change to page 43, line 31, of SSHB 4 is
overreaching and the change should have instead been to change
the word "terms".
REPRESENTATIVE SEATON concurred that is what he was addressing.
3:13:30 PM
REPRESENTATIVE TARR related her understanding that there are 180
days to approve the contract carrier agreement, 30 days for the
initial recourse tariff filing, and 90 days for the recourse
tariff upon completion of construction. She explained that
she's reviewing the timeline in terms of the workload for the
RCA.
3:14:05 PM
MS. DELBRIDGE opined that those timelines are correct, but noted
that they will be spaced out over time rather than all at once.
The RCA will not have to review all those things at once. The
recourse tariff will be present before a carrier even has an
open season. After an open season, there is a window to approve
the outcome of that, the [participating area] PA. Later, when a
revision is filed, the [RCA] will have 90 days to review.
3:14:33 PM
The committee took an at-ease from 3:14 p.m. to 3:38 p.m.
3:38:50 PM
REPRESENTATIVE TUCK moved that the committee adopt Conceptual
Amendment 1 to Amendment 1, such that the proposed change listed
on page 3, line 2, of Amendment 1 would read:
Page 42, line 28, following "contained the"
REPRESENTATIVE TUCK explained that adoption of the
aforementioned change to SSHB 4 would result in the language on
page 42, lines 27-28, to read: "The notice shall contain the
approved recourse tariff, the proposed form of the precedent
agreement ...." Conceptual Amendment 1 to Amendment 1 is
necessary, he explained, in order to delineate which of the two
"proposed" words on line 28 of SSHB 4 is to be deleted and
replaced with "approved".
There being no objection, Conceptual Amendment 1 to Amendment 1
was adopted.
3:42:09 PM
CO-CHAIR FEIGE noted now the committee has before it the motion
to adopt Amendment 1, as amended. He further noted that
Representative Tarr had objected, but was not present at this
time. He then inquired as to whether there was further
objection. There being no further objection, Amendment 1, as
amended, was adopted.
3:42:34 PM
REPRESENTATIVE TUCK commented that [the adoption of Amendment 1,
as amended] is a big improvement from the original legislation
and thanked the sponsor for the clarifications and improvements,
although the comprehensive nature of it may have been better
served as separate legislation. He said he was glad for the
earlier discussion, which educated him regarding that SSHB 4
applies to all pipelines.
3:43:16 PM
CO-CHAIR FEIGE announced that SSHB 4 would be held over and that
the committee would address the remainder of the amendments to
it on March 4, 2013.
Amendment 1 to SSHB 4
Page 40, following line 21:
Insert a new paragraph to read:
"(3) to the extent necessary to perform the
duties of the commission under this chapter, have
access to, and may designate its employees, agents, or
consultants to inspect and examine, the accounts,
financial and property records, books, maps,
inventories, appraisals, valuations, and related
reports kept by an in-state natural gas pipeline
carrier, or kept for an in-state natural gas pipeline
carrier by others, that directly affect the interests
of the state and directly relate to in-state natural
gas pipelines located in the state during normal
business hours;"
Renumber the following paragraph accordingly.
Page 40, line 28, through page 41, line 10:
Delete all material and insert:
"(1) review and approve recourse tariffs
filed by an in-state natural gas pipeline carrier
under this chapter;
(2) review and approve contracts;
(3) investigate on its own motion or after
receiving a complaint, a dispute
(A) related to rules, regulations,
services, practices, and facilities that are not
subject to the dispute resolution provisions in an in-
state natural gas pipeline carrier's contracts or
recourse tariff;
(B) presented by a complainant that does
not have a contract with the in-state natural gas
pipeline carrier;
(C) related to the conduct of an in-state
natural gas pipeline carrier's open season under
AS 42.08.300; or
(D) related to an unreasonable diminution
in quantity or quality in the provision of service to
a public utility that
(i) is a violation of the in-state natural
gas pipeline carrier's tariff or contract with the
public utility;
(ii) has not been resolved by the in-state
natural gas pipeline carrier; and
(iii) will result in immediate injury,
loss, or damage to the peace, health, safety, or
general welfare of the public as clearly demonstrated
by specific facts shown by affidavit or verified
complaint;"
Renumber the following paragraphs accordingly.
Page 41, lines 25 - 29:
Delete all material and insert:
"(c) Except as provided in this chapter, the
commission may not
(1) require rates, rate design, or tariff
rates or regulations;
(2) require an in-state natural gas
pipeline carrier to make a recourse tariff filing;
(3) order a modification of a contract that
is approved, considered approved, or filed under this
chapter; or
(4) conduct further review or investigation
of a contract that is approved, considered approved,
or filed under this chapter."
Page 42, line 26, following "shall":
Insert "include in its approved recourse tariff
the procedures for conducting open seasons for
uncommitted firm transportation service and for
expansion. At a minimum, the in-state natural gas
pipeline carrier shall"
Page 42, line 28:
Delete "proposed"
Insert "approved"
Page 43, following line 21:
Insert a new subsection to read:
"(f) An in-state natural gas pipeline carrier
shall file revised recourse rates before conducting an
open season under (c) and (d) of this section unless
the in-state natural gas pipeline carrier filed
revised recourse rates during the immediately
preceding two-year period."
Page 43, line 23, following "agreement":
Insert ", a recourse tariff,"
Page 43, line 27, following "basis":
Insert "and may be levelized over the
depreciation life of the pipeline"
Page 43, line 31, following "terms":
Insert "and conditions"
Page 44, line 7, following "service":
Insert "and any substantial amendments"
Page 44, line 12, following "chapter.":
Insert "In this subsection, "substantial
amendment" means an amendment that materially changes
a rate or term and condition of service."
Page 45, lines 9 - 11:
Delete ", the natural gas pipeline carrier shall
provide to the commission a cost study that shall be
used solely for the purpose of this subsection"
Insert "under (c)(2) of this section, the
commission may consider the in-state natural gas
pipeline carrier's approved recourse tariff, including
the cost data underlying that tariff"
Page 47, line 4:
Delete "all recourse tariffs"
Insert "a complete recourse tariff containing
rates"
Page 47, lines 8 - 13:
Delete "The in-state natural gas pipeline carrier
shall maintain copies on file at its principal
business office and at places designated by the
commission and make copies available to, and subject
to inspection by, the general public on demand. Rules,
regulations, terms, and conditions not included in the
tariff of an in-state natural gas pipeline carrier
shall be included in the contract with each shipper."
Page 47, lines 14 - 20:
Delete all material and insert:
"(b) The terms and conditions under which an in-
state natural gas pipeline carrier offers its services
and facilities to the public shall be governed
strictly by the provisions of its currently effective
recourse tariff as supplemented and modified by
contracts that have been approved by the commission. A
legally filed and effective recourse tariff rate,
charge, rule, regulation, or condition of service may
not be changed except as provided in this chapter. The
in-state natural gas pipeline carrier shall maintain
copies of its recourse tariff on file at its principal
business office and at places designated by the
commission and make the copies available to and
subject to inspection by the general public on demand.
(c) A change in a recourse tariff rate, charge,
rule, regulation, or condition of service is not
effective until filed under (a) of this section. If
more than one recourse tariff rate or charge may
reasonably be applied for billing purposes, the
recourse tariff rate or charge most advantageous to
the shipper shall be used.
(d) The commission may reject the filing of all
or part of a recourse tariff that is not consistent
with this chapter. A recourse tariff rate or provision
so rejected is void.
(e) Initial and revised recourse tariffs shall
be filed in the manner provided in AS 42.08.350.
Sec. 42.08.350. Initial or revised rates. (a) An
in-state natural gas pipeline carrier may not
establish or place in effect an initial recourse
tariff containing rates, charges, rules, regulations,
conditions of service, or practices without providing
notice to the commission and to the public at least 30
days before establishing or placing in effect the
initial recourse tariff. Notice shall be filed with
the commission before an open season and by making the
recourse tariff provisions available for public
inspection. The notice shall plainly indicate the time
when the recourse tariff will go into effect and
include a supporting cost model. The commission may
prescribe additional requirements for the notice and
the form in which the notice must be provided. The
commission, for good cause shown, may allow initial
recourse tariffs to take effect on less than 30 days'
notice under conditions the commission prescribes by
order. Submission of a precedent agreement or an
associated contract is not subject to this section.
(b) The commission shall review the proposed
initial recourse tariff and verify that the proposed
terms and conditions of service are not unduly
discriminatory. The commission also shall review the
supporting cost model provided with an initial
recourse tariff filing and verify, taking into
consideration the expected risks, that the proposed
rate of return on equity is within the range of
permissible rates of return as determined by the
Federal Energy Regulatory Commission in recent
decisions related to the construction of natural gas
pipelines, that the cost model incorporates a
reasonable depreciation methodology and economic life,
and that the cost model uses a reasonable capital
structure. A proposed depreciation methodology,
economic life, or capital structure is reasonable if
it is commonly accepted or used by the commission or
the Federal Energy Regulatory Commission.
(c) Unless a recourse tariff is denied because it
includes a proposed term or condition of service that
is unduly discriminatory or includes a proposed rate
element that does not comply with (b) of this section,
the commission shall approve the initial recourse
tariff. If the commission does not issue its ruling
within 30 days, the initial recourse tariff filing
shall be considered approved.
(d) An in-state natural gas pipeline carrier may
not establish or place in effect a revised rate,
charge, rule, regulation, condition of service, or
practice contained in a recourse tariff before
providing notice to the commission and to the public
at least 90 days before taking the action. After
construction of the pipeline, and any time thereafter
that a carrier files for a revised recourse rate, the
carrier shall file a supporting cost study. Notice
shall be given by filing with the commission and
keeping open for public inspection the revised
recourse tariff provisions, which shall plainly
indicate the changes to be made in the schedules then
in force and the time when the changes will go into
effect. The commission may prescribe additional means
of giving notice. The commission, for good cause
shown, may allow changes to take effect on shorter
notice under conditions the commission prescribes by
order. Submission of a precedent agreement or an
associated contract is not subject to this subsection.
(e) The commission shall review the proposed
revised recourse tariff and verify that a new or
revised term or condition of service is not unduly
discriminatory. The commission shall review the cost
study supporting a revised recourse tariff filing and
verify that, for the rate elements specified in (b) of
this section, the carrier is using the same elements
that were last approved by the commission. A proposed
recourse tariff with a new or revised term or
condition of service that is unduly discriminatory
shall be denied. The commission also shall deny a
revised tariff rate that does not use the previously
approved value of the specified rate element, unless
the carrier proves that the new value is just and
reasonable. If the commission does not issue its
ruling within 90 days, the revised recourse tariff
filing shall be considered approved.
(f) A person initiating a change in an existing
recourse tariff bears the burden of proving the
reasonableness of the change. The in-state natural gas
pipeline carrier bears the burden of proving the
recourse tariff terms and conditions are not unduly
discriminatory.
(g) An in-state natural gas pipeline carrier
shall provide for separate rates for one or more
classes of firm transportation service and for
interruptible transportation service in a recourse
tariff filed with the commission under (a) of this
section. An in-state natural gas pipeline carrier may
impose a reservation fee or similar charge for
reservation of capacity in an in-state natural gas
pipeline as a condition of providing firm
transportation service, but may not impose a
reservation fee or similar charge for reservation of
capacity in an in-state natural gas pipeline for
interruptible transportation service."
Page 47, line 21:
Delete "Sec. 42.08.350"
Insert "Sec. 42.08.360"
Page 47, line 25:
Delete "Sec. 42.08.360"
Insert "Sec. 42.08.370"
Page 47, lines 30 - 31:
Delete all material and insert:
"(b) The recourse tariff or a contract filed by
an in-state natural gas pipeline carrier may include a
dispute resolution procedure. A dispute resolution
procedure shall
(1) provide that notice of a dispute be
given to all shippers;
(2) culminate in a process that is
determined by an independent third party or panel; and
(3) permit the participation of existing
shippers and creditworthy potential shippers that have
previously made good faith requests for firm
transportation service; a participant must satisfy the
commission's standard for intervention in an
adjudicatory proceeding and demonstrate that the
participant has a property, financial, or other
significant interest in the dispute."
Page 48, line 1:
Delete "Sec. 42.08.370"
Insert "Sec. 42.08.380"
Page 49, line 6:
Delete "Sec. 42.08.380"
Insert "Sec. 42.08.390"
Page 50, following line 12:
Insert new material to read:
"Article 5. Accounts, Records, and Reports.
Sec. 42.08.450. Accounts; records; triennial
reports. (a) To the extent necessary for the
commission to perform the duties of the commission
under this chapter,
(1) the commission may by regulation
require an in-state natural gas pipeline carrier or
affiliated interest engaged in activities relating to
pipelines to establish and maintain as part of its
system of accounts continuing property records
showing, as to property that is actually being used in
pipeline activity in this state, the year of placement
in service, original cost, and current location, and,
as to a pipeline system, accounts and records in a
manner showing, on a current basis, the original cost
of the system in the state and related reserves for
depreciation;
(2) the in-state natural gas pipeline
carrier shall
(A) keep its accounts for its pipeline
facilities located in this state separate from any
accounts relating to any other business, including
another pipeline facilities business or a subsidiary
business, in which it engages, directly or indirectly;
except as the commission provides, property, expense,
or revenue used in or derived from the other business
may not be considered in establishing the rates and
charges of the facility;
(B) keep books, accounts, papers, and
records required by this chapter or by regulations
adopted by the commission under this chapter in an
office in this state and may not remove them from the
state except upon written authority by the commission;
and
(C) file a report with the commission that
contains an updated cost study and a calculation of
the three-year average actual return on equity; the
report shall be filed every three years after the
pipeline begins operations, within 90 days after the
close of the annual accounting period for the in-state
natural gas pipeline carrier, or within additional
time granted by the commission upon a showing of good
cause.
(b) The commission shall review the cost study
described in (a)(2)(C) of this section and verify
that, for the rate elements specified in
AS 42.08.350(b), the carrier is using the same
elements that were last approved by the commission. If
the carrier does not use the correct rate elements in
its triennial report, the commission may require the
carrier to recalculate and file a corrected report.
If, on the date the report described in (a)(2)(C) of
this section is delivered, the report reflects that
the three-year average actual return on equity exceeds
the approved rate of return, the carrier shall, not
later than 90 days after the date the report is
delivered, deposit an amount equal to the excess in a
segregated operating reserve fund. The carrier shall
continue to deposit the excess described in this
subsection at the times described in this subsection
until the amount in the operating reserve fund is
equal to 20 percent of the most recent three-year
average of the carrier's annual operating costs. The
carrier may use money in the operating reserve fund to
offset any shortage in the recovery of operating costs
set out in another triennial report. If a deposit will
cause the operating reserve fund to exceed 20 percent
of the most recent three-year average of the carrier's
annual operating costs, the amount exceeding 20
percent must be used to reduce, on a volumetric basis,
the firm transportation service rates for all shippers
for the next three-year period."
Page 50, line 13:
Delete "Article 5"
Insert "Article 6"
Page 50, line 30:
Delete "AS 42.08.220(b)(2)"
Insert "AS 42.08.220(b)(3)"
| Document Name | Date/Time | Subjects |
|---|---|---|
| HCR1 Fiscal Note - LAA.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Letters of Support.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Mat-Su Borough Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Sponsor Statement.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Summary of Changes.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Version A.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HCR1 Version U (EDT).pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HB04 Mat-Su Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 ASAP Tariff Diagram.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Legal Memo RE AGIA.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Tesoro Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Nenana Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 CVDA Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 State Chamber Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Cook Inlet Energy Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Seward Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 North Pole Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Fairbanks Resolution.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Doyon Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 North Slope Borough Letter.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Amendment O.9.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HCR1 Additional Letters of Support.pdf |
HRES 3/1/2013 1:00:00 PM |
HCR 1 |
| HB04 Rep. Hawker Presentation - RCA Amendment.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Amendments O.1-6&10.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |
| HB04 Amendment O.9 Incorporated.pdf |
HRES 3/1/2013 1:00:00 PM |
HB 4 |