Legislature(2003 - 2004)
03/27/2003 01:35 PM Senate L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 151-REGULATION OF NATURAL GAS PIPELINES
CHAIR BUNDE announced SB 151 to be up for consideration.
MS. MARY JACKSON, staff to Senator Wagoner, sponsor, said SB 151
is a housekeeping measure. In 2000, the legislature amended the
Alaska Pipeline Act. One of the provisions of that legislation
allowed for two classes of pipeline service: firm and
interruptible. Those services applied to the North Slope gas
pipeline because it was the only pipeline at that time. Since
then, the Kenai Kachemak (KKPL) pipeline has come on line. The
KKPL was initially intended to run from the southern end of the
Kenai Peninsula back to Kenai as the oil reserves were in the
south. The KKPL wrote to the Regulatory Commission of Alaska
(RCA) requesting that it be allowed to offer both firm and
interruptible services. The RCA replied that the 2000
legislation governing classes of service to pipelines was only
specific to the North Slope. This bill deletes "North Slope" and
adds a section that defines a natural gas pipeline facility and
a natural gas pipeline carrier.
MS. JACKSON told members the bill should contain an immediate
effective date as the pipeline is under construction. She
pointed out the Department of Natural Resources submitted a zero
fiscal note, but included some concerns on page 2. [Senator
Wagoner] disagrees with the assertion that this could
potentially be used to impede pipeline access for non-
affiliated producers and could hinder natural gas exploration.
She told members that representatives of Marathon Oil were
present to speak to that. She noted the function of the RCA is
to insure fairness.
MR. BEN SCHOFFMANN, Marathon Oil, said he is the project manager
for the Kenai Kachemak Pipeline project known as KKPL. SB 151
would provide the RCA with a tool to offer two types of service
to pipelines, firm and interruptible, that it currently applies
to the North Slope gas line. FERC has used the same policy often
in the Lower 48 over the past two decades by FERC. This bill
would clarify that the RCA has the authority to grant other
pipelines the authority to grant those two classes of service,
otherwise known as contract carriage, to regulated gas pipelines
elsewhere in the state.
He explained that firm service is a commitment between the
pipeline owner and its customers to provide a designated amount
of throughput on a set daily basis. The shipper agrees to pay
for that capacity whether or not it is utilized. It is a risk
decision the shipper makes to reserve capacity. The shipper pays
what is known as a reservation charge for that privilege.
Interruptible service is offered on an as available basis. The
pipeline would offer to transport volumes and the shipper would
only have to pay for services actually used. The parties have no
long-term commitment as to promised throughputs, deliveries or
payments for gas that is not rendered for delivery.
SB 151 is important to investors because when you put money on
the line, it's good to know that people are actually going to be
interested in using the pipeline capacity you're building.
Offering firm transportation is a way for pipeline investors to
make sure they will have customers and to understand what the
level of interest is and how serious that interest is. With firm
transportation, shippers are asked to commit in advance and make
payments for capacity whether it's used or not. It sets a
minimum standard for how large the pipeline must be. He stated.
"Without that, it's a wild guess...It helps them reduce their
risk and manage their expectations."
MR. SCHOFFMANN said SB 151 is important for shippers because
they want to be sure that they're going to be able to ship gas
on that line. Shippers generally have two types of gas sales
contracts and those are firm or interruptible. If a pipeline is
then placed between a gas supplier and their end customer, like
Enstar, Chugach Electric, industrial users and residents, but it
doesn't have the capability to offer the same type of service,
then it almost undermines the contractual relationship between a
supplier and a customer. The supplier needs the ability not only
to produce the gas with certainty, but also to ship that gas to
the customer with certainty. This helps the shipper align its
transportation services with its gas contracts. If it has firm
gas contracts, it more than likely will want firm transportation
services.
CHAIR BUNDE asked if this bill would only allow the smaller gas
pipeline the same flexibility that TAPS has currently.
MR. SCHOFFMANN replied that current law deals with natural gas
pipelines and the TAPS.
CHAIR BUNDE asked him to address DNR's concern that the fiscal
note might discourage gas development.
MR. SCHOFFMANN replied that the situation with the fiscal note
seems to imply that unaffiliated shippers would not be able to
have certainty with which to conduct their operations, but he
disputes that implication because the producers are given two
options, one of firm service and the other to wait and see what
the development is before they put money on the line. The RCA
will be involved in insuring that this is a non-discriminatory
process that is fairly transparent. This includes designating
expansions of the line.
SENATOR FRENCH asked if this legislation would be necessary if
the KKPL was proposed as a common carrier pipeline.
MR. SCHOFFMANN replied that the common carrier provisions are
already in AS 42.06. This is a clarification to the common
carrier provisions that allow two classes of service. Now,
practically speaking, all common carriers offer interruptible
service only, because if the pipelines get oversubscribed,
everybody gets curtailed.
SENATOR FRENCH said his sense is that this legislation would not
be necessary if it just involved common carriers, but that
wouldn't satisfy his business plans.
MR. SCHOFFMANN agreed and said SB 151 is necessary as a function
of the development of the gas transportation and deregulation
process that's happened over the past couple of decades.
Projects that define what has happened in the industry have not
come up during that time frame.
SENATOR SEEKINS asked if SB 151 will allow smaller independent
producers to find carriers to get their products to market that
might not exist under any other scenario unless they built their
own pipelines.
MR. SCHOFFMANN replied they believe SB 151 will be advantageous
to all potential customers, small producers included, because
they are not being asked to commit anything in advance over the
long-term. However, they will see a pipeline with published and
regulated tariffs and the fact that the pipeline is getting
built and is getting closer to some of their operations provides
a huge incentive to accelerate their plans or drill wells that
they wouldn't have if they were 33 miles further away from that
infrastructure.
SENATOR SEEKINS said that this addresses an overall concern he
has about how to encourage smaller independent businesses to get
into the energy production business in Alaska.
MR. ANTHONY SCOTT, Division of Oil and Gas, DNR, said the
contract carriage provisions can reduce producer risk for a non-
producer affiliated pipeline, which is the general case outside
of Alaska. With a producer-affiliated pipeline, there is the
potential for concern that during the open season, the pipeline
could decide to either meet the needs of the producers, which he
understands is not the case with KKPL, or monopolize capacity
before an independent shipper has explored or discovered the
gas. This legislation will affect not only KKPL, but future
pipelines as well.
SENATOR FRENCH asked if this proposed pipeline is going to be
owned by an affiliated or non-affiliated pipeline company.
MR. SCHOFFMANN responded that KKPL is a joint venture between
Marathon and Unocal, who are also committed as shippers. They
are an affiliated company. The issues that were raised really do
fall under the purview of the RCA to make sure that a fair
process is in place. If Marathon and Unocal find gas in other
areas of the Kenai Peninsula where they have not yet explored,
they would be in the same position as anyone else who has yet to
make a commitment to the pipeline. The RCA has the authority to
look at the tariffs to make sure they are balanced.
SENATOR SEEKINS moved to adopt Amendment 1 to add an immediate
effective date. There were no objections and it was so ordered.
MR. STRANDBERG, RCA Commissioner, testified that this approach
would be a new one in the regulation of pipelines.
TAPE 03-16, SIDE B
MR. STRANDBERG said he didn't know how SB 151 would affect
preexisting firm transport contracts that can be negotiated
under new language and whether the RCA would have the ability to
require the parties to those contracts to renegotiate for a pro
rata share reduction that would be required under the common
carrier provision.
SENATOR SEEKINS questioned why this would be considered a new
approach if, in effect, SB 151 only removes "North Slope."
MR. STRANDBERG replied currently, the RCA is just regulating two
gas pipelines in the state. The North Slope pipeline hadn't been
constructed yet. The two gas lines are regulated under the
state's public utility statutes. He clarified, "We really have
no gas pipelines that are regulated under AS 42.06 right now."
SENATOR SEEKINS noted that it isn't a new approach in statute,
since the statute already exists for North Slope gas. It's just
that there isn't one in operation yet.
MR. STRANDBERG said he is correct.
CHAIR BUNDE asked Mr. Strandberg to submit a written response to
the concern expressed by DNR in its fiscal note, and said he
would distribute copies to the committee. He announced the
committee would hold SB 151 until further notice.
| Document Name | Date/Time | Subjects |
|---|