Legislature(2005 - 2006)SENATE FINANCE 532

07/25/2006 09:00 AM Senate SPECIAL COMMITTEE ON NATURAL GAS DEV


Download Mp3. <- Right click and save file as

Audio Topic
09:16:36 AM Start
09:16:36 AM SB3001 || SB3002
09:22:33 AM Robert J. Cupina, Ferc
09:48:08 AM Jacqueline Holmes, Ferc
10:10:17 AM Donald Shepler, Consultant to the Legislature
10:13:02 AM Robert Pease, Ferc
10:31:22 AM Ken Griffin, Deputy Commissioner, Dnr
11:01:53 AM Karol Lyn Newman, Morgan, Lewis & Bockius, for Anadarko
11:25:31 AM David Van Tuyl, Bp
11:32:20 AM Bradford G. Keithley, Jones Day, for Bp
12:10:13 PM Bill Mcmahon, Exxonmobil
12:58:43 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB3001 OIL/GAS PROD. TAX TELECONFERENCED
Heard & Held
+= SB3002 STRANDED GAS AMENDMENTS TELECONFERENCED
Heard & Held
                   SB 3001-OIL/GAS PROD. TAX                                                                                
                SB 3002-STRANDED GAS AMENDMENTS                                                                             
                                                                                                                                
9:16:36 AM                                                                                                                    
CHAIR SEEKINS  opened the  hearing on  SB 3001 and  SB 3002.   He                                                               
noted in  a letter  to the  Federal Energy  Regulatory Commission                                                               
(FERC) the  committee had requested  discussion of  the following                                                               
with  respect  to the  proposed  gas  pipeline:   FERC's  July 10                                                               
report  to  Congress;  its  prefiling  application  process;  its                                                               
powers to ensure access to  capacity on the pipeline for shippers                                                               
and  prospective shippers  not affiliated  with pipeline  owners;                                                               
FERC's review of competition issues  as part of its processing of                                                               
a certificate application; its  enforcement powers and procedures                                                               
with  respect  to  affiliate relationships  in  a  producer-owned                                                               
Alaska  gas   pipeline,  including  the  response   time  of  the                                                               
enforcement  hotline;  and FERC's  review,  if  any, relating  to                                                               
anticompetitive behavior  for a  pipeline, including  the concept                                                               
of "basin control."                                                                                                             
                                                                                                                                
9:19:45 AM                                                                                                                    
^Bob Loeffler, Morrison & Foerster, Counsel to the Governor                                                                     
BOB  LOEFFLER,  Morrison &  Foerster,  Counsel  to the  Governor,                                                               
informed listeners he  has been counsel to the  state in pipeline                                                               
matters  for  a long  time.    Recalling previous  discussion  of                                                               
FERC's role and  authority, he advised members  that this morning                                                               
he'd added expansion issues to the  agenda through an e-mail.  He                                                               
said the  FERC representatives,  who were on  teleconference from                                                               
Washington,  D.C., would  answer  questions  rather than  provide                                                               
testimony as such.                                                                                                              
                                                                                                                                
^Robert J. Cupina, FERC                                                                                                         
ROBERT J.  CUPINA, Deputy Director  for Policy, Office  of Energy                                                               
Projects,  Federal   Energy  Regulatory   Commission,  introduced                                                               
himself  as well  as Bob  Pease and  Jacqueline Holmes;  he noted                                                               
Jeff Wright might join in, depending on the questions.                                                                          
                                                                                                                                
9:22:33 AM                                                                                                                    
CHAIR SEEKINS highlighted expansion and  basin control.  He asked                                                               
what  safeguards,  policies  and   procedures  are  in  place  to                                                               
preclude  basin   control  if,  for  example,   the  three  major                                                               
producers were to hinder access  to the proposed pipeline to keep                                                               
others out of the gas-production business.                                                                                      
                                                                                                                                
MR. CUPINA responded  that before there is  expansion, there must                                                               
be  a pipe.    He  indicated FERC  laid  the  groundwork for  the                                                               
capacity   in   the   initial   pipeline  to   be   sold   on   a                                                               
nondiscriminatory  basis when  it did  its open  season rule,  as                                                               
required under the 2004 Act.   That was the beginning of ensuring                                                               
that everyone  interested in capacity  has an  equal opportunity.                                                               
Once  a pipeline  is  in place  and  expansion becomes  justified                                                               
because of increased volumes, the  pipeline would conduct another                                                               
open season  on the  expansion capacity,  going through  the same                                                               
process; owners,  non-owners and all potential  shippers would be                                                               
under the same terms and conditions to bid for that service.                                                                    
                                                                                                                                
9:25:54 AM                                                                                                                    
CHAIR SEEKINS reported hearing that  there is a difficult process                                                               
in order to get to the expansion.                                                                                               
                                                                                                                                
MR. CUPINA  explained that under  that same 2004 Act,  the Alaska                                                               
Natural  Gas Pipeline  Act (ANGPA),  two types  of expansion  are                                                               
contemplated.   The  first, voluntary  expansion,  is common  for                                                               
interstate  pipelines.   When a  pipeline following  its business                                                               
model deems that  an expansion is profitable, it will  go into an                                                               
open season to gauge market interest.                                                                                           
                                                                                                                                
He  said the  second, mandatory  or involuntary  expansion, is  a                                                               
brand-new legal  authority under  ANGPA that  applies only  to an                                                               
Alaska  gas pipeline.   It  would enable  a potential  shipper to                                                               
file a complaint with FERC, saying  it wants an expansion but the                                                               
pipeline has  refused, and asking  FERC to order it.   Mr. Cupina                                                               
suggested the  argument could  be made  that because  this hasn't                                                               
been  fully  tested, it  could  be  subject to  an  on-the-record                                                               
complaint proceeding.                                                                                                           
                                                                                                                                
CHAIR SEEKINS  asked why it was  included only for an  Alaska gas                                                               
pipeline and not elsewhere in the country.                                                                                      
                                                                                                                                
9:29:00 AM                                                                                                                    
MR. CUPINA replied he believes  there were a number of variations                                                               
from  FERC's  normal policy  in  that  Act, specific  to  Alaska,                                                               
recognizing  there  probably  would  be only  one  pipeline,  and                                                               
taking  into  account  concerns of  other  stakeholders,  smaller                                                               
producers  in the  state that  might  want gas  before it  leaves                                                               
Alaska  and so  on.   Thus  ANGPA was  targeted  to address  some                                                               
concerns  that don't  necessarily  apply in  the Lower 48,  where                                                               
there often is competition between pipelines.                                                                                   
                                                                                                                                
SENATOR WILKEN noted  a question has come up with  respect to the                                                               
difficulty  new  explorers have  in  accessing  the oil  pipeline                                                               
today;  he cited  examples.   He related  his understanding  that                                                               
expansion of the proposed gas  pipeline beyond 25 percent will no                                                               
longer  allow  cheap  compressor   expansion,  but  will  require                                                               
expensive looping and  additional compressors.  He  asked in what                                                               
manner  the   state  and   producers  will   say  to   FERC  that                                                               
economically   they   prefer   rolled-in  pricing   rather   than                                                               
incremental pricing  on any expansion,  to avoid the  problems of                                                               
today, and  so new producers  can have  access 20 years  from now                                                               
and  not  be  burdened  with the  complete  incremental  cost  of                                                               
expansion beyond that 25 percent.                                                                                               
                                                                                                                                
9:32:43 AM                                                                                                                    
MR.  CUPINA  answered  that  is  a good  example  of  where  FERC                                                               
deviated from its  standard policy.  On  expansions going forward                                                               
there will be a rebuttable  presumption that costs are rolled in.                                                               
The standard policy,  by contrast, is they are rolled  in as long                                                               
as  they   don't  increase  the  rates   of  existing  customers;                                                               
otherwise, it's incrementally priced.   He added that FERC's open                                                               
season  rule, in  response to  comments  from parties,  addressed                                                               
that by making that policy  pronouncement with respect to rolled-                                                               
in pricing,  thereby giving  assurance -  to the  extent possible                                                               
without  actually having  a project  and numbers  to view  - that                                                               
future expansions will be on a rolled-in basis.                                                                                 
                                                                                                                                
SENATOR WILKEN asked if there is  a way today for the people, the                                                               
administration and  the producers  to make  a formal  request for                                                               
that policy from the date of the contract onward.                                                                               
                                                                                                                                
MR.  CUPINA responded  that he  couldn't think  of anything  else                                                               
required outside of FERC's order  and the rehearing of its order.                                                               
He said he wanted  to be sure in this discussion  not to get into                                                               
the   provisions  of   the  proposed   contract,  which   they've                                                               
studiously avoided because it is unique to the State of Alaska.                                                                 
                                                                                                                                
SENATOR   STEDMAN  asked   whether  it   automatically  goes   to                                                               
incremental  pricing if  there is  any  change in  the price,  or                                                               
whether some change can be absorbed by the current people.                                                                      
                                                                                                                                
MR. CUPINA  answered, "They didn't  lay out any percentage."   He                                                               
recalled  at  one  time,  some years  ago,  a  percentage  aspect                                                               
determined  whether it  was rolled  in.   In  the Alaskan  order,                                                               
however,  FERC  recognized  it   was  doing  something  a  little                                                               
different and,  to the extent it  could, said its policy  will be                                                               
to  have  rolled-in  expansion,  not  increasing  the  rates  for                                                               
existing customers.   Where FERC  was talking about  a rebuttable                                                               
presumption  that costs  would be  rolled in,  it was  looking at                                                               
mainly the type of expansions expected as production increases.                                                                 
                                                                                                                                
SENATOR BEN STEVENS  referred to the fiscal  interest finding and                                                               
asked Mr. Loeffler how big the  pipeline will be.  He recalled it                                                               
would  originally be  4.2 billion  cubic feet  (Bcf) a  day, with                                                               
cheap expansion to 5.9 Bcf.                                                                                                     
                                                                                                                                
MR. LOEFFLER  confirmed those numbers  are about right,  the best                                                               
known today.                                                                                                                    
                                                                                                                                
SENATOR BEN  STEVENS calculated the cheap  expansion to therefore                                                               
be 40  percent, not 25 percent.   He asked Mr.  Cupina whether it                                                               
is up  to FERC  or the  pipeline owners  to make  a determination                                                               
with respect to a voluntary-expansion application.                                                                              
                                                                                                                                
MR.  CUPINA responded  that FERC  ultimately makes  the decision,                                                               
but it usually  starts with a proposal from  the pipeline owners.                                                               
He opined  that FERC was  signaling here its inclination  to roll                                                               
in the cost  of expansions, whether or not those  costs raise the                                                               
rates for existing customers, for  reasons mentioned earlier with                                                               
respect to later explorers.                                                                                                     
                                                                                                                                
9:39:29 AM                                                                                                                    
SENATOR BEN STEVENS  posed a scenario in which  the project moves                                                               
forward  and goes  through an  open season,  with capacity  fully                                                               
subscribed;   three  years   later,  a   leaseholder  does   some                                                               
exploration and determines it can  now apply for capacity because                                                               
it has proven reserves.  He  asked whether that entity would have                                                               
two  options:     negotiate  with  the   pipeline  operators  for                                                               
voluntary expansion  or file  a complaint  with FERC  and request                                                               
mandatory expansion.                                                                                                            
                                                                                                                                
MR.  CUPINA affirmed  those  two options,  but  pointed out  FERC                                                               
would  first  expect  discussions  about  a  voluntary  expansion                                                               
before going to the next step.                                                                                                  
                                                                                                                                
SENATOR BEN STEVENS  asked:  If there is  negotiation between the                                                               
pipeline  operators and  a new  producer  to determine  rolled-in                                                               
versus  incremental pricing,  would that  final determination  be                                                               
made by the pipeline operator or FERC?                                                                                          
                                                                                                                                
9:41:18 AM                                                                                                                    
^Jacqueline Holmes, FERC                                                                                                        
JACQUELINE   HOLMES,  Associate   General   Counsel  for   Energy                                                               
Projects, Federal  Energy Regulatory Commission, replied  that if                                                               
the  pipeline   operator  filed   a  voluntary   application  for                                                               
expansion,  the  decision  whether  it would  be  incremental  or                                                               
rolled in  would ultimately  be FERC's.   The current  policy for                                                               
the  Alaska pipeline  for voluntary  expansion, stated  in FERC's                                                               
open  season regulations,  is a  rebuttable presumption  that the                                                               
cost of expansion is rolled in.                                                                                                 
                                                                                                                                
MR.  CUPINA, in  further response,  explained that  the rolled-in                                                               
presumption  was  a  policy  change by  FERC  for  all  voluntary                                                               
expansion, whether  cheap or expensive.   Recalling one  issue in                                                               
the comments, that a rolled-in  basis is only beneficial to later                                                               
shippers  if  it applies  to  the  more expensive  expansion,  he                                                               
emphasized   that   mandatory   expansion   isn't   automatically                                                               
incremental.   For mandatory expansion, there  is another wrinkle                                                               
in the Act:  the cost  of the expansion cannot increase the rates                                                               
of the  existing shippers.  He  said it remains to  be determined                                                               
by FERC exactly how to apply that.                                                                                              
                                                                                                                                
9:48:08 AM                                                                                                                    
SENATOR BEN STEVENS asked:  If  there is a petition for mandatory                                                               
expansion, does that portion of  the expansion capacity go out to                                                               
open season?                                                                                                                    
                                                                                                                                
MR. LOEFFLER recalled that Orders  2005 and 2005-A say they don't                                                               
apply to mandatory expansions.   "I think the commission reserved                                                               
that," he added, offering to check the cite.                                                                                    
                                                                                                                                
MS. HOLMES affirmed that recollection.                                                                                          
                                                                                                                                
MR. CUPINA said  he believed the idea of  mandatory expansion was                                                               
viewed as case-specific,  with the expectation it  would be rare.                                                               
If  Mr. Loeffler  is correct,  that would  be a  reason why  this                                                               
whole open season is associated with it.                                                                                        
                                                                                                                                
MS. HOLMES  added that technically the  current FERC regulations,                                                               
which  mandate open  seasons for  voluntary expansions,  wouldn't                                                               
apply to a  mandatory one.  If FERC were  to consider a mandatory                                                               
expansion, it would  also consider the process  the company would                                                               
have to go through at that time.                                                                                                
                                                                                                                                
SENATOR  BEN STEVENS  mentioned the  potential for  basin control                                                               
and  asked:   If  a  new  company  found  gas, went  through  the                                                               
mandatory-expansion  process  and  was granted  expansion,  would                                                               
that  company  have secure  rights  to  the expansion  such  that                                                               
existing shippers couldn't outbid for it?                                                                                       
                                                                                                                                
MR.  LOEFFLER answered  that the  expansion statute  says if  the                                                               
commission  orders mandatory  expansion, the  order becomes  void                                                               
unless  the  person  requesting the  expansion  executes  a  firm                                                               
transportation (FT)  agreement.  He  interpreted it to  say there                                                               
cannot be an  open season, because if the person  who applied for                                                               
the  expansion  must execute  an  FT  agreement, it  implies  the                                                               
person is entitled to that  capacity if the commission orders it.                                                               
He clarified  that he didn't know  whether FERC had looked  at it                                                               
or taken a view on it.                                                                                                          
                                                                                                                                
9:52:06 AM                                                                                                                    
SENATOR BEN  STEVENS asked  whether any  provision in  Alaska law                                                               
can override a FERC ruling.                                                                                                     
                                                                                                                                
MR. LOEFFLER replied no.                                                                                                        
                                                                                                                                
SENATOR BEN  STEVENS related his  understanding that  federal law                                                               
overrides state  law in  interstate commerce.   He  asked whether                                                               
any  provision, in  any contract  in the  U.S. between  shippers,                                                               
could nullify or mitigate a provision required by FERC.                                                                         
                                                                                                                                
MS.  HOLMES  said she  believed  the  answer  was  no.   If  FERC                                                               
requires something  under its jurisdiction under  the Natural Gas                                                               
Act  or its  own regulations,  a company  generally cannot  agree                                                               
with its shippers not to follow  that.  There are times, however,                                                               
when FERC  will grant a waiver  of its regulations if  good cause                                                               
is shown.                                                                                                                       
                                                                                                                                
MR. LOEFFLER agreed,  adding that when FERC  issues a certificate                                                               
with conditions, the applicant doesn't have to accept it.                                                                       
                                                                                                                                
9:55:10 AM                                                                                                                    
SENATOR   BEN  STEVENS   asked:     Under  voluntary   expansion,                                                               
regardless of negotiations between  the pipeline operator and the                                                               
applicant for capacity, is the  determination of rolled-in versus                                                               
incremental pricing determined by FERC?                                                                                         
                                                                                                                                
MS. HOLMES  replied yes, FERC will  set the rate for  the service                                                               
on the pipeline.   In response to a  hypothetical situation posed                                                               
by  Chair  Seekins,  she  offered her  belief  that  Section  105                                                               
[of ANGPA] says the following:   Under a mandatory expansion, the                                                               
commission  shall   ensure  the  rates  don't   require  existing                                                               
shippers on  the natural gas transportation  project to subsidize                                                               
"expansion shippers."                                                                                                           
                                                                                                                                
She noted  it is  a question  of what  constitutes subsidization;                                                               
that is where  FERC would look at the price  of the expansion and                                                               
fair allocation of  those costs.  Ms. Holmes added  that in cases                                                               
of  cheap expansion  in the  Lower 48  or the  interstate system,                                                               
FERC  generally requires  a rolled-in  basis because  it benefits                                                               
rather than harms existing shippers on the system.                                                                              
                                                                                                                                
9:59:17 AM                                                                                                                    
REPRESENTATIVE  RALPH SAMUELS,  Alaska State  Legislature, asked:                                                               
If influence  in the process  is desired, would Congress  need to                                                               
be   petitioned,   since   FERC  will   decide,   and   expansion                                                               
capabilities cannot be affected through the contract or statute?                                                                
                                                                                                                                
MR. CUPINA replied that FERC  would decide on the public interest                                                               
in considering  whether to  issue a certificate.   As  to whether                                                               
contract terms can deviate from  FERC policies or Alaska Statute,                                                               
he noted  Ms. Holmes had  said in  general they cannot,  but FERC                                                               
has granted  certain waivers,  if justified.   The law  cannot be                                                               
changed  by  writing  something into  the  contract,  Mr.  Cupina                                                               
added, but it is a question  of bringing it before the commission                                                               
so FERC can see the evidence and reasoning.                                                                                     
                                                                                                                                
MR.  LOEFFLER  requested  confirmation that  the  contract  could                                                               
influence what  is proposed  to FERC,  but couldn't  control what                                                               
FERC decides.                                                                                                                   
                                                                                                                                
MR. CUPINA affirmed  that, adding that everything  which comes to                                                               
FERC is based on some sort of contract or precedent agreement.                                                                  
                                                                                                                                
10:02:04 AM                                                                                                                   
^Donald Shepler, Consultant to the Legislature                                                                                  
DONALD  SHEPLER,  Greenberg  Traurig,   LLP,  Consultant  to  the                                                               
Legislature,  restated   that  understanding.     Highlighting  a                                                               
distinction  between  a rate  increase  and  a subsidy,  he  then                                                               
requested confirmation  that the 2004  statute in the  context of                                                               
mandatory   expansion  doesn't   prohibit   FERC  from   ordering                                                               
expansion  if there  is  a rate  increase  to existing  shippers;                                                               
rather,  it's if  FERC  finds it  would result  in  a subsidy  by                                                               
existing shippers to the new shippers.                                                                                          
                                                                                                                                
MR. CUPINA agreed, adding that  FERC Order 2005-A focused on that                                                               
definition  of   subsidy  and  indicated  it   could  be  applied                                                               
differently  than for  the Lower  48.   For mandatory  expansion,                                                               
there could  be rolled-in  or incremental  pricing, and  FERC, to                                                               
his belief, said it must look at the situation.                                                                                 
                                                                                                                                
MR.  SHEPLER clarified  that he'd  drawn the  distinction because                                                               
Mr. Cupina said earlier that  FERC cannot mandate expansion if it                                                               
results  in  an increase  to  existing  shippers, whereas  it  is                                                               
actually a  subsidy.   He suggested lawyers  will debate  this at                                                               
great length.                                                                                                                   
                                                                                                                                
MS. HOLMES concurred with Mr. Shepler's interpretation.                                                                         
                                                                                                                                
MR. CUPINA said the point was well taken.                                                                                       
                                                                                                                                
MR. LOEFFLER agreed, but suggested  under mandatory expansion the                                                               
contract  is irrelevant,  because mandatory  expansion under  the                                                               
statute is initiated  by some excluded party -  not the pipeline.                                                               
When talking about  what is proposed by  the pipeline, therefore,                                                               
it's only  for voluntary expansion,  and the contract  would have                                                               
bearing on what is proposed.                                                                                                    
                                                                                                                                
MR. CUPINA  concurred.   Referring to  Ms. Holmes'  testimony, he                                                               
said a  mandatory expansion  culminates in a  firm contract.   It                                                               
doesn't begin with a contract, but ends with a contract.                                                                        
                                                                                                                                
MR. LOEFFLER agreed.                                                                                                            
                                                                                                                                
CHAIR  SEEKINS  asked  whether  the  following  understanding  is                                                               
correct:  There  is a 40 percent expansion capacity  in the pipe.                                                               
The  contract  terms  could provide  that,  without  unreasonable                                                               
delay,  the  state  or  pipeline   owners  would  participate  in                                                               
voluntary expansion as supplies of gas become available.                                                                        
                                                                                                                                
MR.  LOEFFLER answered  yes, noting  the LLC  agreement describes                                                               
the process for the pipeline  to entertain a voluntary expansion,                                                               
including how it will be studied  and voted on.  He also recalled                                                               
a section  that says  if someone  files for  mandatory expansion,                                                               
the LLC  might reverse  a neutral  position and  decide to  be in                                                               
control of it, rather than be  subject to a FERC proceeding.  The                                                               
reason is this:  If it has  a sound economic basis, it would seem                                                               
to be in the pipeline's interest  to expand its business, just as                                                               
it would be in any business's interest to get more customers.                                                                   
                                                                                                                                
10:10:17 AM                                                                                                                   
MR. LOEFFLER asked  Mr. Pease:  If the pipeline  owners engage in                                                               
behavior viewed as anticompetitive,  what remedies does FERC have                                                               
in Order 2004 or Order 670, for instance?                                                                                       
                                                                                                                                
^Robert Pease, FERC                                                                                                             
ROBERT PEASE, Division of  Investigations, Office of Enforcement,                                                               
Federal  Energy Regulatory  Commission, replied  that FERC  has a                                                               
number of  remedies and powers, some  new.  For any  violation of                                                               
the  Natural  Gas  Act  or any  statute  under  the  commission's                                                               
jurisdiction or regulations,  FERC can impose a  civil penalty up                                                               
to $1 million  a day per violation; this is  a significant change                                                               
in  FERC's authority.   The  commission  also has  the option  of                                                               
ordering disgorgement of any profits  that would have been gained                                                               
by the  illegal behavior.  As  set out in its  enforcement policy                                                               
statement  of last  year, it  would begin  with disgorgement  and                                                               
then proceed to other remedies including civil penalties.                                                                       
                                                                                                                                
He said  FERC has authority  to prohibit undue  discrimination on                                                               
the pipeline.   The idea of  the standards of conduct  is a level                                                               
playing  field  and  similar   treatment  for  all  participants,                                                               
including affiliates  and the producers.   Mr. Pease  pointed out                                                               
that undue  discrimination doesn't have  to rise to the  level of                                                               
manipulation to trigger enforcement  or FERC's potential million-                                                               
dollar-a-day  civil penalty  authority; violations  include those                                                               
involving  tariff conditions  or  certificate conditions.   If  a                                                               
violation continued for 100 days,  for example, the maximum civil                                                               
penalty would be up to $100 million, since it is per day.                                                                       
                                                                                                                                
10:13:02 AM                                                                                                                   
MR. PEASE,  in response  to Chair  Seekins, explained  that under                                                               
FERC  regulations,  Section  358,  "energy  affiliate"  means  an                                                               
affiliate of  a transmission  provider that is  engaged in  or is                                                               
involved  in   transmission  transactions   in  U.S.   energy  or                                                               
transmission markets.   Noting that  is the broad  definition, he                                                               
added that  there cannot be  undue discrimination in favor  of an                                                               
energy affiliate.                                                                                                               
                                                                                                                                
SENATOR  HOFFMAN asked:   What  course of  action does  the state                                                               
have  if  there is  a  disagreement  with  FERC with  respect  to                                                               
rolled-in or  incremental pricing, or mandatory  versus voluntary                                                               
expansion,  when   there  is  a   conflict  with   Article  VIII,                                                               
Section 2,  of  the Alaska  State  Constitution,  which says  the                                                               
legislature shall  provide for  the utilization,  development and                                                               
conservation of  all natural resources  that belong to  the state                                                               
for the maximum benefit of its people?                                                                                          
                                                                                                                                
MR. PEASE noted this discussion  has related to FERC jurisdiction                                                               
over the  pipeline, not  the gas  itself.  He  added that  in any                                                               
case before  FERC, including pipeline construction  or operation,                                                               
the  state can  certainly make  its case  as to  why FERC  should                                                               
deviate from something it said previously.                                                                                      
                                                                                                                                
SENATOR HOFFMAN suggested the effort  is to determine the maximum                                                               
benefit of  the resource,  since the state  will be  a percentage                                                               
owner, at 25 percent.                                                                                                           
                                                                                                                                
MR. PEASE responded that FERC  would consider whatever was in the                                                               
record of  the case, to  see whether  it justified a  change from                                                               
what it  otherwise would do.   He  pointed out that  FERC doesn't                                                               
regulate  commodity  prices,  production  and so  forth,  but  is                                                               
mindful, under ANGPA,  that part of its obligation  is to further                                                               
production and exploration with respect to pipeline operations.                                                                 
                                                                                                                                
10:17:06 AM                                                                                                                   
CHAIR  SEEKINS  returned  to Senator  Ben  Stevens'  remark  that                                                               
federal law would  prevail, since this is  an interstate commerce                                                               
issue.   Agreeing with the  need to  ensure that the  resource is                                                               
used for the  maximum benefit of Alaskans, Chair  Seekins said he                                                               
didn't  know  how  it  would   interplay,  but  the  state  could                                                               
certainly present  its case  if FERC  regulation were  to somehow                                                               
affect it.                                                                                                                      
                                                                                                                                
SENATOR  BEN STEVENS  asked Mr.  Pease whether  these enforcement                                                               
regulations are different from normal FERC regulations.                                                                         
                                                                                                                                
MR.  PEASE  clarified that  in  the  Energy  Policy Act  of  2005                                                               
(EPAct), passed last August, Congress  gave FERC enhanced penalty                                                               
authority that it  didn't have before.  The  regulation he'd read                                                               
has existed  since 2004.   Prior to  that, for a  violation under                                                               
the Natural Gas  Act, FERC had only  limited remedies, including:                                                               
disgorgement,  which he  views as  giving back  money they  never                                                               
should have had  to begin with; conditions put  on a certificate;                                                               
or  revocation  of   a  certificate  if  the   violation  was  so                                                               
egregious,  which  has rarely  happened,  if  at all,  in  FERC's                                                               
history.   Since  August 8,  therefore, Mr.  Pease said  FERC has                                                               
civil penalty authority for any  violation under any of the rules                                                               
or statutes that FERC administers.                                                                                              
                                                                                                                                
He further  explained that last  spring, pursuant to  EPAct, FERC                                                               
enacted   new  regulations   designed  to   prevent  manipulative                                                               
behavior, which  carried civil penalties that  didn't exist prior                                                               
to  the statute.    Before that,  there  were so-called  behavior                                                               
rules, with  no civil penalties.   Today, there is  civil penalty                                                               
authority  under any  rule, statute  or  regulation under  FERC's                                                               
authority.  Included  are the standards of  conduct, which govern                                                               
affiliate  relations,   and  also  the   certificate  conditions,                                                               
including construction and operation  of the pipeline under those                                                               
certificate conditions.   All those potentially are  subject to a                                                               
civil penalty of $1 million a day per violation.                                                                                
                                                                                                                                
MR. LOEFFLER  noted it also  applies to  a violation of  the open                                                               
season regulations.                                                                                                             
                                                                                                                                
MR.  PEASE  agreed,   specifying  it  applies  to   any  and  all                                                               
regulations and  statutes relating to gas  under the commission's                                                               
jurisdiction.                                                                                                                   
                                                                                                                                
10:21:13 AM                                                                                                                   
SENATOR  WAGONER asked:   With  35 trillion  cubic feet  (Tcf) of                                                               
proven reserves  on the North Slope,  and a 52- or  54-inch pipe,                                                               
what  is  the  advantage  to  the State  of  Alaska  and  smaller                                                               
producers - which  have the potential to find  major gas reserves                                                               
- of an  early open season?   Someone might want to use  a 40- or                                                               
48-inch pipe, for instance, thus  reducing the ability to take in                                                               
amounts other  than the 35 Tcf  of known reserves.   Offering his                                                               
understanding  that  nothing in  the  contract  talks about  pipe                                                               
size, he recalled  that one company wants two  36-inch pipes, and                                                               
said he was beginning to discover the advantages to that.                                                                       
                                                                                                                                
MR. LOEFFLER  replied there are  two parts.  First,  he suggested                                                               
FERC may  say something about  how it  will review the  pipe size                                                               
when an application is received,  although FERC probably couldn't                                                               
comment on the larger economic question.                                                                                        
                                                                                                                                
CHAIR SEEKINS suggested  the fourth topic on the  list, review of                                                               
anticompetitive  issues   as  part  of  the   processing  of  the                                                               
certificate application, may fit with this.                                                                                     
                                                                                                                                
MR. LOEFFLER  asked whether someone  from FERC wished  to address                                                               
what the commission will look at.                                                                                               
                                                                                                                                
AN UNIDENTIFIED  FERC REPRESENTATIVE replied that  when FERC gets                                                               
an  engineering   application,  pipeline  engineers  do   a  flow                                                               
analysis to see  whether it is adequate for  the proposed maximum                                                               
throughput.  If  someone said there were contracts  for 4.5 Bcf a                                                               
day, for  instance, FERC would look  at the pipe design  and flow                                                               
characteristics  to  ensure  they  matched.    As  for  potential                                                               
expansion, everything FERC  looks at is in a contract  regime.  A                                                               
lot of timing questions and  determinations of public convenience                                                               
and necessity are  based on whether there is a  contract with the                                                               
pipeline for capacity.  If there  are contracts for 4.5 Bcf a day                                                               
and a  pipeline designed to  adequately accommodate that  gas, it                                                               
is one part of determining  public convenience and necessity.  He                                                               
noted  FERC  hears  different opinions  about  the  optimum  pipe                                                               
diameter or number of pipes.                                                                                                    
                                                                                                                                
MR. LOEFFLER  added there are  several layers of answers.   There                                                               
is a bit of "the chicken or the  egg" with respect to how long to                                                               
wait for the  pipeline.  There may be more  definite knowledge in                                                               
five years, but this pipeline has been anticipated a long time.                                                                 
                                                                                                                                
He gave his view that an  early open season results in an earlier                                                               
pipeline,  and that  the open  season  is the  first step,  where                                                               
customers are tested  to see who is willing to  sign up for long-                                                               
term capacity.   Mr. Loeffler recalled that  the commission said,                                                               
in its  open season  order, that  if people  aren't ready  by the                                                               
first  open season  and have  a good  reason, it  will force  the                                                               
applicant to say why later discoveries cannot be accommodated.                                                                  
                                                                                                                                
He noted  designing the right  size of  pipe is a  combination of                                                               
engineering and  economics.  Commission  precedent has  been that                                                               
extra  capacity  can be  built  in  a pipeline,  beyond  existing                                                               
contracts, but the pipeline must pay  for it if nobody is willing                                                               
to sign  up.  Mr. Loeffler  highlighted the expense of  this.  He                                                               
opined that delaying the open season delays the pipeline.                                                                       
                                                                                                                                
10:28:58 AM                                                                                                                   
^Ken Griffin, Deputy Commissioner, DNR                                                                                          
KEN   GRIFFIN,  Deputy   Commissioner,   Department  of   Natural                                                               
Resources (DNR),  returned to  an issue  raised by  Mr. Loeffler,                                                               
the requirement to consider accommodating  latecomers to the open                                                               
season.    With  respect  to  how  an  early  open  season  might                                                               
disadvantage independents,  he emphasized  that people  have been                                                               
waiting for this pipeline for many years.                                                                                       
                                                                                                                                
He suggested the  issue is a premature open  season, however, not                                                               
just an  early one.   This occurs if an  open season is  held and                                                               
then the pipeline  doesn't progress for a time.   It is difficult                                                               
for  that to  happen, Mr.  Griffin said,  because a  binding open                                                               
season isn't  an incidental  activity.   It requires  an enormous                                                               
amount of preparation.  There  are commitments made on both sides                                                               
at that  point.   If there  is some sense  that a  premature open                                                               
season  has  occurred,  there  are   provisions  that  FERC  will                                                               
consider  latecomers; the  level of  that consideration  could be                                                               
quite significant.                                                                                                              
                                                                                                                                
The committee took an at-ease from 10:31:22 AM to 10:53:00 AM.                                                              
                                                                                                                                
MR. CUPINA informed  members that Mr. Pease had to  leave in five                                                               
minutes,  in   case  there  were   more  questions   relating  to                                                               
enforcement or discrimination.                                                                                                  
                                                                                                                                
CHAIR  SEEKINS summarized  that  FERC  has extensive  enforcement                                                               
powers with  respect to undue  discrimination.  He  surmised some                                                               
discrimination could  be allowed,  and that FERC  can fine  up to                                                               
$1 million a  day per violation,  but may not  necessarily impose                                                               
that, depending on the egregiousness of the violation.                                                                          
                                                                                                                                
MR. PEASE affirmed  that.  He turned to  the enforcement hotline,                                                               
explaining in  response to Chair  Seekins that it is  an informal                                                               
dispute-resolution  service  offered  under  "part  1b"  of  FERC                                                               
regulations.  An  attorney is on duty during  all business hours;                                                               
there  is  e-mail  capability through  FERC's  website  by  which                                                               
questions can  be asked;  and there  is an  after-hours recording                                                               
from which  calls are returned  the next  morning.  There  can be                                                               
anonymous treatment.                                                                                                            
                                                                                                                                
He said all  information gathered through the  hotline is treated                                                               
confidentially.   The goal is  to resolve disputes as  quickly as                                                               
possible; over  75 percent of calls  to the hotline  are resolved                                                               
in less  than two  weeks.   Ms. Pease  explained that  some calls                                                               
aren't appropriate  for resolution through the  hotline, however,                                                               
and an  allegation of  wrongdoing, in  particular, would  be more                                                               
appropriate to treat as an investigation.                                                                                       
                                                                                                                                
CHAIR SEEKINS asked what kinds  of issues are normally brought to                                                               
the hotline.                                                                                                                    
                                                                                                                                
MR.   PEASE   answered   they   involve   anything   under   FERC                                                               
jurisdiction, including:   multimillion-dollar disputes; requests                                                               
for help  when lights go out  in a city; landowner  issues, which                                                               
are frequent;  restoration issues; and interpretation  of various                                                               
regulations, where  FERC will  try to get  staff consensus  as to                                                               
what a particular regulation or provision means.                                                                                
                                                                                                                                
10:56:35 AM                                                                                                                   
^Karol Lyn Newman, Morgan, Lewis & Bockius, for Anadarko                                                                        
KAROL LYN  NEWMAN, Morgan,  Lewis & Bockius  LLP, partner  in her                                                               
law  firm representing  Anadarko Petroleum  Corporation, referred                                                               
to  an earlier  question  as to  whether the  mandatory-expansion                                                               
process contemplates  an open season  and FERC's  indication that                                                               
there  weren't any  rules yet.   She  said because  there are  no                                                               
rules yet  on how Section  105 of  ANGPA will be  interpreted, it                                                               
isn't   clear  whether   open  seasons   will  be   conducted  in                                                               
conjunction with  requests for  mandatory expansion  by potential                                                               
shippers.  For  example, if a small company  with some production                                                               
asked the pipeline  for an expansion to  accommodate its reserves                                                               
and the  answer was  no, then  the company would  go to  FERC and                                                               
initiate the process for a mandatory expansion.                                                                                 
                                                                                                                                
She suggested  it would  be consistent with  FERC policy  if FERC                                                               
also  looked  to  see whether  other  potential  shippers  needed                                                               
additional capacity  at that time.   Thus the expansion  could be                                                               
done  at one  time.   Ms. Newman  proposed that  it is  possible,                                                               
therefore,  for open  seasons  to be  conducted  in some  fashion                                                               
within  a mandatory-expansion  process.   Although she  concurred                                                               
with Mr. Loeffler's earlier point  that the shipper who requested                                                               
the expansion would have to  sign a contract within the requisite                                                               
period of  time, Ms. Newman opined  this still  wouldn't preclude                                                               
an open season.                                                                                                                 
                                                                                                                                
MR. LOEFFLER said he needed  to find the statutory provision, but                                                               
agreed  Ms. Newman's  description  was more  consistent than  not                                                               
with FERC  policy.  "FERC likes  open seasons," he remarked.   He                                                               
then paraphrased  Section 105(c) of ANGPA, part  of the expansion                                                               
section, which states:                                                                                                          
                                                                                                                                
     (c) REQUIREMENT FOR A FIRM TRANSPORTATION COMMITMENT -                                                                     
     Any order of the Commission issued in accordance with                                                                      
     this   section  shall   be  void   unless  the   person                                                                    
     requesting  the order  executes  a firm  transportation                                                                    
     agreement  with the  Alaska natural  gas transportation                                                                    
     project within  such reasonable period  of time  as the                                                                    
     order may specify.                                                                                                         
                                                                                                                                
He  observed  there  is  a  tension  between  FERC's  traditional                                                               
policies and this particular clause.                                                                                            
                                                                                                                                
11:01:53 AM                                                                                                                   
SENATOR BEN  STEVENS requested confirmation that  if a mandatory-                                                               
expansion   application  was   granted,  the   capacity  in   the                                                               
application would be issued to the applicant.                                                                                   
                                                                                                                                
MR.  CUPINA specified  that  if  such a  case  was  brought by  a                                                               
potential shipper seeking capacity, and  FERC granted it based on                                                               
the  evidence, it  would  be  subject only  to  execution of  the                                                               
aforementioned agreement.   He noted  Ms. Newman  was suggesting,                                                               
however, that  during the  course of  that proceeding  FERC might                                                               
also ask whether anyone else  wanted capacity, and would consider                                                               
that as well.  He agreed it certainly is a possibility.                                                                         
                                                                                                                                
SENATOR BEN STEVENS surmised in  that instance the petition would                                                               
be  for  an increase  above  the  applicant's capacity,  and  the                                                               
original  applicant's amount  wouldn't be  reduced on  a pro-rata                                                               
basis.                                                                                                                          
                                                                                                                                
MR. CUPINA agreed, noting FERC hadn't seen any of these yet.                                                                    
                                                                                                                                
11:03:49 AM                                                                                                                   
CHAIR SEEKINS  posed a scenario  under mandatory  expansion where                                                               
person A has  applied for 100 units and person  B has applied for                                                               
another 50.   He  interpreted this to  mean that,  if successful,                                                               
person A  would get  100 units  and person B  would get  50; they                                                               
wouldn't split the 150 units granted.                                                                                           
                                                                                                                                
SENATOR  BEN STEVENS  agreed, but  emphasized his  point that  if                                                               
only 125  units were issued  in the  permit, there wouldn't  be a                                                               
pro-rata reduction.                                                                                                             
                                                                                                                                
CHAIR  SEEKINS requested  confirmation that  the application  for                                                               
mandatory  expansion  wouldn't be  on  a  competitive basis,  but                                                               
would be for a person's particular requested expansion.                                                                         
                                                                                                                                
MR. CUPINA  affirmed that,  saying the  person would  be bringing                                                               
the   action  and   showing  justification,   and  shouldn't   be                                                               
penalized.                                                                                                                      
                                                                                                                                
CHAIR  SEEKINS related  his  understanding  that under  voluntary                                                               
expansion,  by contrast,  someone would  have to  compete in  the                                                               
open season.                                                                                                                    
                                                                                                                                
MR. CUPINA  answered that's one way  of putting it, but  the open                                                               
season is  so everyone has  an opportunity.  Ideally,  the result                                                               
is that all participants get exactly what they want.                                                                            
                                                                                                                                
CHAIR SEEKINS  expressed appreciation to Ms.  Newman for bringing                                                               
this to the committee's attention.                                                                                              
                                                                                                                                
MS.  NEWMAN remarked  that she  was  pleased the  concept of  "no                                                               
subsidy" as  opposed to  "no increase" had  been clarified.   She                                                               
emphasized  the desire  to  make that  distinction,  as shown  by                                                               
comments made to  the committee, the Senate,  Congress and others                                                               
including FERC.                                                                                                                 
                                                                                                                                
11:06:09 AM                                                                                                                   
SENATOR GENE THERRIAULT, Alaska  State Legislature, agreed that a                                                               
critical  point  is the  difference  between  a subsidy  and  "no                                                               
increase in  rate," and  how FERC  might treat  it.   He recalled                                                               
discussions  with FERC's  former  Chairman  Wood which  indicated                                                               
FERC possibly  would allow  some increase in  the rate  and still                                                               
not  treat it  as  a subsidy,  as long  as  the original  shipper                                                               
didn't  go  beyond the  original  price  at  which it  signed  up                                                               
to ship.                                                                                                                        
                                                                                                                                
He also recalled his involvement  in the legislature's input into                                                               
the FERC  rule-making process.  Senator  Therriault told members,                                                               
"We certainly  were advocating for  rolled-in pricing  across the                                                               
board, and what we got from FERC was  a bit of a mixed bag:  this                                                               
presumption,   of   course,   on  voluntary,   and   there's   no                                                               
determination  exactly how  things  will be  treated  ... on  the                                                               
mandatory."                                                                                                                     
                                                                                                                                
MS.  NEWMAN recalled  that FERC  hadn't  directly addressed  what                                                               
would be  a subsidy.   For  example, if the  tariff rate  for the                                                               
initial capacity of  the pipeline was set at $10  a decatherm and                                                               
the  initial  shippers had  a  contract  at  $8, it  isn't  clear                                                               
whether the  difference would  be deemed  a subsidy;  FERC hasn't                                                               
ruled.  It  might be argued it isn't a  subsidy because it hasn't                                                               
even  hit  the  regular  tariff  rate at  this  point.    Another                                                               
hypothetical scenario is  when someone is at or  below the tariff                                                               
rate and  an inexpensive  expansion is  done; the  average tariff                                                               
rate would drop, and the rate  in phase two, looked at across the                                                               
board  on  a rolled-in  basis,  would  be $8  or  $9.   The  next                                                               
expansion, looping,  would cause  the rate to  rise from  the new                                                               
level up to $9 or $10.  That might not be considered a subsidy.                                                                 
                                                                                                                                
She  said there  are  a  number of  factors.    For example,  the                                                               
initial capacity,  but not the  expansion, will have  the benefit                                                               
of  federal  loan  guarantees.   Will  the  difference  in  rates                                                               
established for those be considered  a subsidy?  Ms. Newman noted                                                               
FERC will  have a number  of questions  to address once  the next                                                               
expansion will raise  the rate above what  existing shippers pay,                                                               
and the answers aren't clear.                                                                                                   
                                                                                                                                
11:10:21 AM                                                                                                                   
MR.  LOEFFLER  agreed  it  isn't  known  whether  these  will  be                                                               
considered subsidies.                                                                                                           
                                                                                                                                
SENATOR BEN  STEVENS pointed  out that those  unknowns are  to be                                                               
determined by FERC, not the legislature or the contract.                                                                        
                                                                                                                                
CHAIR SEEKINS  surmised they'll apply  to any project,  no matter                                                               
who the sponsor is.                                                                                                             
                                                                                                                                
MS.   NEWMAN   responded  that   FERC   will   be  the   ultimate                                                               
decision maker on  whether something  is or  isn't a  subsidy and                                                               
thus whether  a given expansion  will be priced  incrementally or                                                               
on a rolled-in  basis; that applies to the  Alaska pipeline under                                                               
the  guidelines in  ANGPA,  which has  a  provision dealing  with                                                               
mandatory expansion.   Suggesting FERC could  address this better                                                               
than she,  Ms. Newman  added that  FERC's current  general policy                                                               
tends  to  require that  expansions  be  incrementally priced  if                                                               
they'll cause  the rates paid  by existing shippers  to increase.                                                               
Agreeing FERC  will decide, she  emphasized that the  proposal is                                                               
always made by the applicant.                                                                                                   
                                                                                                                                
11:12:56 AM                                                                                                                   
CHAIR  SEEKINS asked  whether  this would  apply  equally to  any                                                               
interstate project that fell within FERC jurisdiction.                                                                          
                                                                                                                                
AN UNIDENTIFIED FERC REPRESENTATIVE answered yes.                                                                               
                                                                                                                                
CHAIR  SEEKINS  asked  whether anything  in  the  contract  would                                                               
affect the eventual ruling from FERC.                                                                                           
                                                                                                                                
MS. HOLMES replied that a  contract would shape the proposal that                                                               
FERC ultimately would rule on.                                                                                                  
                                                                                                                                
CHAIR  SEEKINS surmised  in the  end it  would be  based on  FERC                                                               
policy and regulations, not necessarily  on the request, probably                                                               
based on the best public interest.                                                                                              
                                                                                                                                
MS. HOLMES affirmed that.                                                                                                       
                                                                                                                                
11:14:36 AM                                                                                                                   
SENATOR  THERRIAULT  alluded  to  Article 8.7  of  the  contract,                                                               
voicing  concern  that  the   state-sponsored  expansion  in  8.7                                                               
appears more  restrictive for  the state.   It doesn't  mention a                                                               
subsidy, but  relates to an increase  in the rate, which  is more                                                               
cut-and-dried  and perhaps  wouldn't allow  latitude for  FERC to                                                               
consider whether it is a subsidy.                                                                                               
                                                                                                                                
CHAIR  SEEKINS  asked  if  that  concern  goes  to  the  scenario                                                               
described  by Ms.  Newman:   the  effective tariff  is below  the                                                               
original approved  tariff, and  new expansion  brings it  back to                                                               
the original  rate; it would  be seen as  a rate increase,  not a                                                               
subsidy, since it wouldn't have reached the original tariff.                                                                    
                                                                                                                                
SENATOR   THERRIAULT   affirmed   that.     Based   on   personal                                                               
conversation  with  FERC's  former Chairman  Wood,  he  suggested                                                               
there would  be latitude to consider  an increase in rates  up to                                                               
the original stated  tariff, and FERC might determine  it isn't a                                                               
subsidy.   It would  still be  under the letter  of the  law, the                                                               
federal statute.                                                                                                                
                                                                                                                                
MR. LOEFFLER agreed  that in addition to  voluntary and mandatory                                                               
expansion  there  is  a  third  type:    state-sponsored,  state-                                                               
initiated expansion under the contract.   Saying it is a separate                                                               
dialogue,  he  acknowledged  the  point raised  by  Anadarko  and                                                               
Senator Therriault,  but said all  that matters is what  FERC has                                                               
put  in its  orders; conversations  with prior  chairmen have  no                                                               
value, since FERC operates through  the written word.  While that                                                               
precise issue, what a subsidy  is, was discussed in Order 2005 or                                                               
Order 2005-A, he said FERC didn't take a position on it.                                                                        
                                                                                                                                
11:17:44 AM                                                                                                                   
MR.  SHEPLER  highlighted  discussion  in  either  Order 2005  or                                                               
Order 2005-A of the  following issue:  If the first  phase of the                                                               
pipeline  received federal  loan  guarantees,  reducing the  debt                                                               
cost and lowering the rate  for the existing shippers, would that                                                               
be  viewed as  a  subsidy to  those shippers?    For purposes  of                                                               
applying subsidy language going  forward, Mr. Shepler said, there                                                               
would be  a requirement that  the rates had  to go above  the so-                                                               
called subsidized rates flowing  from the federal loan guarantee.                                                               
Thus there is  some written discussion in FERC's order  on how it                                                               
would approach the issue of a  subsidy.  He agreed this arises in                                                               
the context  of a mandatory expansion,  which current regulations                                                               
don't address,  but said it  somewhat illustrates  the complexity                                                               
of issues when starting down the road of mandatory expansion.                                                                   
                                                                                                                                
MR. LOEFFLER  also emphasized the complexity,  saying the federal                                                               
loan guarantee would  make credit available on  better terms than                                                               
the  private market,  but those  terms are  unknown.   "You can't                                                               
lock yourself  into assumptions of  what the future will  be," he                                                               
added.                                                                                                                          
                                                                                                                                
MR.  CUPINA agreed  there is  discussion in  both Order  2005 and                                                               
Order  2005-A, the  rehearing, about  how  FERC's current  policy                                                               
outside  of Alaska  has  been  primarily to  judge  a subsidy  by                                                               
whether   or   not   existing  customers'   rates   would   rise.                                                               
Distinguishing that  from this  rule for  an Alaska  pipeline, he                                                               
noted  FERC  had said  there  might  be  other ways  of  defining                                                               
"subsidy"  without actually  doing  so,  preserving the  ultimate                                                               
decision to be a case-specific determination.                                                                                   
                                                                                                                                
11:22:17 AM                                                                                                                   
^David Van Tuyl, BP                                                                                                             
DAVID  VAN  TUYL,  Commercial  Manager,  Alaska  Gas  Group,  BP,                                                               
emphasized BP's focus  on getting the pipeline built,  as seen by                                                               
its submittal  of an application  and going  through negotiations                                                               
to put  a contract  before the legislature,  and as  reflected by                                                               
chief  executive  John Browne  in  the  Wall Street  Journal  two                                                             
months ago.   Mr. Van Tuyl said  once a project is  built, BP can                                                               
entertain the  possibilities of  expansions and  rolled-in versus                                                               
incremental rates.                                                                                                              
                                                                                                                                
He related BP's position that it  is appropriate for FERC to make                                                               
decisions once facts  are known, on a case-by-case basis.   It is                                                               
limiting and  perhaps a  bit dangerous  to presuppose  what those                                                               
facts should  be and limit the  outcomes; specifically, mandating                                                               
what  an expansion  application must  include creates  additional                                                               
risk  for the  "anchor shippers"  of the  project.   Mr. Van Tuyl                                                               
told members  BP doesn't  want to  jeopardize the  possibility of                                                               
getting  the  pipeline built  in  the  first  place -  its  prime                                                               
objective.                                                                                                                      
                                                                                                                                
He  noted FERC  Orders  2005  and 2005-A  reflect  some of  these                                                               
concerns, and  include accommodations for shippers  not yet ready                                                               
at the time  of the initial open season.   "If those folks choose                                                               
not to  spend the money  now to  define what their  gas resources                                                               
are, there is  even an opportunity after the  initial open season                                                               
that   a  late   bid  of   firm  capacity   must  be   given  due                                                               
consideration," Mr. Van Tuyl told members.                                                                                      
                                                                                                                                
He suggested FERC rules anticipate  those kinds of specific needs                                                               
for  the Alaska  project.    Mr. Van  Tuyl  said the  legislative                                                               
consultants had  even outlined  clearly that  the state  has been                                                               
able  to  have its  voice  heard  before  FERC in  shaping  those                                                               
policies.   He emphasized  the desire to  let the  parties freely                                                               
operate under FERC policies on  a case-by-case basis and to allow                                                               
that process to work.                                                                                                           
                                                                                                                                
11:25:31 AM                                                                                                                   
MR. CUPINA explained  that the accommodation in  the initial open                                                               
season  is not  to  close  the door  on  additional requests  for                                                               
capacity after the open season  concludes but before final design                                                               
of the pipeline  is complete.  Rather, it leaves  the open season                                                               
door slightly ajar  for those that might come in  during the time                                                               
the project  is being completely engineered,  and recognizes that                                                               
folks might  not be ready the  first day of the  open season, but                                                               
might  be  ready  to  sign  a contract  two  years  later.    The                                                               
commission  has   said  that  opportunity  should   at  least  be                                                               
available, and  if there is some  good reason why they  cannot be                                                               
accommodated,  FERC will  look at  that.   It is  another special                                                               
provision recognizing the unique circumstances in Alaska.                                                                       
                                                                                                                                
11:27:02 AM                                                                                                                   
^Bradford G. Keithley, Jones Day, for BP                                                                                        
BRADFORD  G. KEITHLEY,  Jones Day,  law firm,  testifying at  the                                                               
request  of  BP,  noted  this  morning  the  focus  had  been  on                                                               
mandatory-expansion provisions as  a protection for nonaffiliated                                                               
producers  with concerns  about basin  control.   He related  his                                                               
view that in the real  world, however, the enforcement mechanisms                                                               
discussed  by  Mr.  Pease  will   motivate  or  control  producer                                                               
behavior  before  ever  getting   to  the  mandatory  provisions.                                                               
Mr. Keithley characterized  mandatory expansion as the  remedy of                                                               
last resort or the tertiary remedy.                                                                                             
                                                                                                                                
He explained  that under  the rules described  by Mr.  Pease, the                                                               
producer-sponsors of the pipeline will  have an obligation, under                                                               
Orders  2004  and  670, that  will  significantly  control  their                                                               
behavior.   Under  Order 2004,  the  producers won't  be able  to                                                               
favor their  affiliates over nonaffiliates,  and must  treat them                                                               
in like  fashion.   Mr. Keithley  said that  will apply  from the                                                               
outset, during the initial open  season as well as any subsequent                                                               
open seasons.                                                                                                                   
                                                                                                                                
He turned to basin control, pointing  out that Order 670 is clear                                                               
that  persons governed  by that  order,  including producers  and                                                               
their affiliates, cannot engage  in anticompetitive behavior such                                                               
as  squeezing  out  independent  companies  from  the  production                                                               
markets  in  order to  take  over  their  leases.   Mr.  Keithley                                                               
explained  that Order  670  was enacted  by  FERC after  Congress                                                               
passed  EPAct in  2005  in  response to  the  Enron debacle;  the                                                               
statute  and  regulations   give  FERC  the  million-dollar-a-day                                                               
violation  authority.   Those regulations  will  control how  the                                                               
producers think about this from  the outset, and will ensure that                                                               
the  producers don't  engage in  behavior that  can be  viewed as                                                               
anticompetitive.                                                                                                                
                                                                                                                                
He  said although  the mandatory-expansion  provision requires  a                                                               
complaint  and  a formal  procedure  before  FERC, violations  of                                                               
Order  2004  or  Order  670  could easily  go  through  the  FERC                                                               
hotline, where, as Mr. Pease  noted, 75 percent of the complaints                                                               
are resolved  within two  weeks.  Mr.  Keithley pointed  out that                                                               
this is  a quick procedure  compared with the  lengthy mandatory-                                                               
expansion procedure.                                                                                                            
                                                                                                                                
He  also pointed  out that  the state,  as an  owner, would  have                                                               
knowledge of  the producers' behavior;  if it saw a  violation or                                                               
anticompetitive  activity,   it  could  raise  those   issues  in                                                               
ownership meetings,  but also  report it to  FERC.   Mr. Keithley                                                               
emphasized  that  nonaffiliates  wouldn't   have  to  wait  until                                                               
mandatory-expansion provisions kicked in  because Orders 2004 and                                                               
670 create a  right to a remedy far more  quickly.  Similarly, if                                                               
people thought something in the  initial open season was designed                                                               
to  adversely affect  nonaffiliates,  they could  raise the  same                                                               
concerns  under Orders  2004  and  670 with  FERC,  to have  them                                                               
resolved immediately in connection with the initial open season.                                                                
                                                                                                                                
11:32:20 AM                                                                                                                   
SENATOR ELTON  asked whether  there has  been any  application of                                                               
Order  670  by  FERC.    He  requested  assurance  that  it  will                                                               
significantly change participants' behavior.                                                                                    
                                                                                                                                
MR.  KEITHLEY  responded  that  FERC  had  rules  prior  to  when                                                               
Congress  passed stiffer  penalties that  resulted in  Order 670.                                                               
Under  that  order's  predecessors,   FERC  took  action  against                                                               
pipelines that engaged  in behavior it found  inappropriate.  For                                                               
example, FERC imposed penalties in  connection with a natural gas                                                               
pipeline's  preferential treatment  of  its marketing  affiliate,                                                               
including  allowing the  affiliate  to sit  in  on meetings  with                                                               
respect  to pipeline  operations;  the remedies  imposed were  so                                                               
severe, the company decided to give up its marketing affiliate.                                                                 
                                                                                                                                
He explained  that in Order  670, FERC both reinforced  that sort                                                               
of  precedent  and brought  in  federal  Securities and  Exchange                                                               
Commission (SEC) law with respect  to what fraud, anticompetitive                                                               
behavior  or inappropriate  behavior is.   Mr.  Keithley reported                                                               
that  Congress,  in passing  EPAct  in  2005, directed  that  SEC                                                               
regulations  and law  be considered;  FERC  explicitly did  that,                                                               
saying it was because SEC had  a substantial body of precedent on                                                               
what fraud  and bad behavior are.   Energy lawyers have  had that                                                               
precedent to  look at,  in addition to  FERC precedent  under the                                                               
prior regulations, to judge what FERC's behavior will be.                                                                       
                                                                                                                                
He  related  his  experience,  having  represented  BP  in  these                                                               
situations,  that the  bias is  to err  on the  side of  caution.                                                               
Mr. Keithley indicated the penalty provisions  - $1 million a day                                                               
and potential "structure penalties"  which could require that one                                                               
operation be  divorced from  another - are  so severe  that these                                                               
companies tend toward being overcautious.   He said FERC has done                                                               
everything  to  reinforce  that  behavior  on  the  part  of  the                                                               
pipelines.                                                                                                                      
                                                                                                                                
11:36:19 AM                                                                                                                   
CHAIR  SEEKINS asked  Mr.  Cupina to  also  provide some  history                                                               
relating to the application of Order 670.                                                                                       
                                                                                                                                
MR. CUPINA deferred to FERC's  Office of Enforcement, but said he                                                               
could obtain  post-EPAct information.   He  noted in  many public                                                               
settings the  chairman or commissioners  have pointed out  a main                                                               
feature  of  EPAct:    FERC's receipt  of  this  significant  new                                                               
authority.   Mr. Cupina said  he has  every reason to  believe it                                                               
will be  used to its  full extent.  He  offered to follow  up any                                                               
requests after talking with the Office of Enforcement.                                                                          
                                                                                                                                
SENATOR ELTON asked  if he could assume that a  complaint about a                                                               
possible violation of Order 670,  with its potential penalties of                                                               
$1 million a day, wouldn't be resolved in two weeks.                                                                            
                                                                                                                                
MR. CUPINA  replied he believed that  was safe to say,  though he                                                               
wouldn't say  "never."  He  agreed it  would likely be  a serious                                                               
matter requiring  investigation.   In response to  Chair Seekins,                                                               
he noted  several possible outcomes  from the  hotline, including                                                               
mediation,   a  fairly   quick  turnaround   or  a   more  formal                                                               
proceeding.  He again deferred to the Office of Enforcement.                                                                    
                                                                                                                                
MR.  KEITHLEY  agreed  that  a complaint  of  behavior  that  has                                                               
resulted in  damages won't be  resolved in two weeks.   Providing                                                               
his own experience,  however, he said a more  normal situation is                                                               
that  a nonaffiliate  asks a  pipeline  to do  something and  the                                                               
pipeline says  no; the nonaffiliate  asserts the pipeline  did it                                                               
for its affiliate,  and the pipeline denies  it; the nonaffiliate                                                               
calls  the enforcement  hotline and  provides facts;  the hotline                                                               
calls the pipeline, which takes  those calls seriously because of                                                               
potential steep penalties; and the  pipeline then either explains                                                               
what occurred to the satisfaction  of enforcement or, more often,                                                               
moderates its behavior  in dealing with the  nonaffiliate.  Those                                                               
can be resolved in two weeks.                                                                                                   
                                                                                                                                
He  explained  that  what  usually goes  to  the  hotline  hasn't                                                               
continued  a  long  time  and  resulted  in  a  lot  of  damages.                                                               
Mr. Keithley  said  those   front-end  situations,  where  people                                                               
aren't taking  litigation postures, are resolved  fairly quickly,                                                               
even though they may involve substantial issues.                                                                                
                                                                                                                                
11:41:17 AM                                                                                                                   
CHAIR SEEKINS  turned attention to  FERC's review  of competition                                                               
issues when processing the certificate application.                                                                             
                                                                                                                                
MR.  CUPINA said  it isn't  usually  a competitive  issue in  the                                                               
certificate  unless talking  about some  historical periods  when                                                               
there  were competing  pipeline proposals.   A  past example  was                                                               
that the FERC  might have found, in response to  an intervenor or                                                               
protestor  in  a   case,  that  an  open   season  was  conducted                                                               
improperly.   A person seeking  capacity might have  followed all                                                               
the rules  and yet,  for whatever reason,  not received  it; thus                                                               
FERC  might  have  ordered  another  open  season  or  found  the                                                               
allegation  improper, all  within the  certificate investigation.                                                               
Mr. Cupina  said FERC deals with  such issues as they  arise, but                                                               
for the most part they aren't seen in the certificate.                                                                          
                                                                                                                                
11:43:11 AM                                                                                                                   
CHAIR SEEKINS  asked where FERC  jurisdiction begins and  ends in                                                               
the process of getting gas to market.                                                                                           
                                                                                                                                
MR.  CUPINA  answered that  in  jurisdictional  cases, some  past                                                               
precedents say interstate movement starts  at the tailgate of the                                                               
plant, where  the gas is  "pipeline quality" because it  has been                                                               
conditioned  and processed;  it is  a matter  of whether  the gas                                                               
meets  pipeline-quality   specifications  at  that  point.     In                                                               
general, the  interstate journey  starts after  the gas  has been                                                               
collected  along a  system, before  it gets  into the  main line.                                                               
The main line is jurisdictional from that point to the terminus.                                                                
                                                                                                                                
CHAIR SEEKINS  asked whether it's after  it comes out of  the gas                                                               
treatment plant (GTP).                                                                                                          
                                                                                                                                
MR. CUPINA affirmed that.                                                                                                       
                                                                                                                                
CHAIR  SEEKINS asked  whether the  GTP itself  is not  under FERC                                                               
jurisdiction.                                                                                                                   
                                                                                                                                
MR.  CUPINA replied  not normally,  but  said he  thought in  the                                                               
Alaska  Natural  Gas  Transportation   Act  (ANGTA)  project  the                                                               
treatment plant was, under that statute, part of the project.                                                                   
                                                                                                                                
11:45:13 AM                                                                                                                   
CHAIR SEEKINS  turned to  issues related to  SB 3001,  saying the                                                               
state is proposing a  capital-expenditure credit for construction                                                               
of the pipeline, to go to owners  of project.  He asked whether a                                                               
20 percent credit of $2 billion,  for instance, would be included                                                               
or excluded  as a  basis for  the tariff.   He  said it  would be                                                               
credited by the state against taxes on the project.                                                                             
                                                                                                                                
MR. LOEFFLER  recalled that  the last time  he'd heard  about the                                                               
credit,  it was  to  be  on the  treatment  plant,  given to  the                                                               
companies  as producers,  not  as  owners of  the  pipeline.   He                                                               
acknowledged that may complicate the hypothetical situation.                                                                    
                                                                                                                                
CHAIR SEEKINS opined it would  be actually given to the producers                                                               
as a  tax credit,  but flows from  construction of  the pipeline,                                                               
the  capital expense.   He  asked  how Mr.  Cupina envisioned  it                                                               
would be treated in terms of establishing a tariff.                                                                             
                                                                                                                                
MR. CUPINA  replied he  wasn't sure that  sort of  side agreement                                                               
would  affect   FERC's  ultimate  transportation  rate,   and  he                                                               
believed the  rate for the  pipeline transportation charge  to be                                                               
based on the capital costs, with return and taxes and so forth.                                                                 
                                                                                                                                
11:48:13 AM                                                                                                                   
MR. KEITHLEY suggested it goes  to the previous question of where                                                               
FERC jurisdiction begins.   Saying he wasn't  sure Mr. Cupina had                                                               
been burdened  with all the facts  about how the system  has been                                                               
set up,  Mr. Keithley  explained that  in the  proposed contract,                                                               
all parties have agreed that  certain facilities - which he would                                                               
list -  will be treated  as FERC-jurisdictional, and  have agreed                                                               
to submit an application to FERC governing all these facilities.                                                                
                                                                                                                                
He informed Mr.  Cupina that the North Slope  has extensive field                                                               
facilities, within each unit, that  gather the gas.  Mr. Keithley                                                               
said the facilities  covered by the contract  are those pipelines                                                               
that will  start at the  gathering facilities within the  field -                                                               
Prudhoe Bay  or Point Thomson, for  instance - and will  run from                                                               
each field  to the GTP; there  the gas is treated,  if necessary,                                                               
and then goes into the main  line, as it's called in the proposed                                                               
contract, for transportation to Canada.                                                                                         
                                                                                                                                
He  noted the  parties have  agreed in  the proposed  contract to                                                               
treat the  following as FERC-jurisdictional:   those pipelines to                                                               
the GTP  that come from  the gathering facilities in  each field;                                                               
the GTP;  and the downstream line  that will run to  Canada.  The                                                               
view  that the  parties have  taken  is that  the GTP  is in  the                                                               
nature of  a "straddle plant"  - a  FERC term describing  a plant                                                               
halfway down  a line  - as  opposed to  a field  treatment plant.                                                               
Asking  Mr. Cupina  to correct  him  if  necessary, Mr.  Keithley                                                               
offered   his   experience   that  FERC   has   always   accepted                                                               
jurisdiction over  an entity that  went to  FERC and said  it was                                                               
jurisdictional.  He emphasized that  in the proposed contract all                                                               
four  owners  have  committed  to   make  applications  for  FERC                                                               
jurisdiction over those facilities.                                                                                             
                                                                                                                                
11:51:00 AM                                                                                                                   
MR. CUPINA built on that  clarification, noting FERC Order 2005-A                                                               
tried  to  address  gas-conditioning  facilities  that  might  be                                                               
jurisdictional, pointing  out that  precedent cases say  that for                                                               
the  treatment  of   the  gas  to  enhance   safe  and  efficient                                                               
transportation, it could  be subject to FERC's  jurisdiction.  It                                                               
also  says  if an  applicant  under  ANGPA  attempts to  file  an                                                               
application   under   Section   7   for   authorization   for   a                                                               
jurisdictional  natural-gas-conditioning   service  through  that                                                               
plant, FERC will  review it and set  the rate.  The  plant may or                                                               
may not be jurisdictional, but the  rate and the service would be                                                               
unbundled and separate from the transportation rate on the pipe.                                                                
                                                                                                                                
MR.  LOEFFLER asked:    If the  plant  isn't jurisdictional,  how                                                               
could FERC set the rates for the plant?                                                                                         
                                                                                                                                
MR. CUPINA  answered that this  seems, depending on  the function                                                               
of the  plant, to  leave it  for the applicant  to come  in under                                                               
Section 7 for that conditioning service.                                                                                        
                                                                                                                                
CHAIR  SEEKINS asked:   Are  there  two separate  charges, one  a                                                               
tariff downstream from  the GTP and one for  conditioning the gas                                                               
to put it into the GTP,  and both would be jurisdictional and set                                                               
by FERC?                                                                                                                        
                                                                                                                                
MR. CUPINA replied that is how this section reads.                                                                              
                                                                                                                                
CHAIR SEEKINS  suggested there  are options,  rather than  a base                                                               
charge.                                                                                                                         
                                                                                                                                
MR.  CUPINA  added  that  one  reason  they'd  be  unbundled  and                                                               
separate is  that it might  be possible  for a shipper  to either                                                               
process  its  own gas  or  bring  gas  that  doesn't need  to  be                                                               
conditioned.                                                                                                                    
                                                                                                                                
CHAIR   SEEKINS  surmised   a   shipper  that   brought  gas   in                                                               
preconditioned or pretreated wouldn't be subject to that charge.                                                                
                                                                                                                                
MR. CUPINA affirmed that.                                                                                                       
                                                                                                                                
MR. KEITHLEY concurred, adding that  the pipelines from the field                                                               
to the  GTP also will be  separately owned and charged,  again so                                                               
that if other producers or marketers  want to build and use their                                                               
own  pipeline, they  are free  to do  so.   And if  they want  to                                                               
bypass the GTP, they may,  subject to the quality restrictions of                                                               
the pipeline.                                                                                                                   
                                                                                                                                
11:54:23 AM                                                                                                                   
CHAIR  SEEKINS  related  his   understanding  that  the  contract                                                               
anticipates  that the  application will  subject those  gathering                                                               
lines to FERC regulation.                                                                                                       
                                                                                                                                
MR.  KEITHLEY  noted "gathering  lines"  is  a  term of  art  for                                                               
transmission  lines.   He specified  they are  short transmission                                                               
lines that will  come from the gathering facilities  in the field                                                               
to the GTP.   He informed Mr. Cupina that  the vision they've had                                                               
in  mind is  the pipelines  behind the  Venice plant,  which FERC                                                               
asserts jurisdiction over in southern Louisiana.                                                                                
                                                                                                                                
MR. CUPINA added  that the cite in Order 2005-A  is to the Venice                                                               
Gathering   Company  as   an  example   where  FERC   could  have                                                               
jurisdiction, depending  on the function  of that land and  if it                                                               
is enhancing safe and efficient transportation.                                                                                 
                                                                                                                                
11:55:44 AM                                                                                                                   
SENATOR STEDMAN restated an earlier  question with respect to the                                                               
rate  set on  the  transmission  lines and  the  GTP.   He  asked                                                               
whether the rate is based on  the total cost; on debt and equity;                                                               
or  just  on equity,  which  leads  into Chair  Seekins'  earlier                                                               
question - since  equity position can be  altered through credits                                                               
- of whether  it has an effect  on it.  If  the capital structure                                                               
is changed  in five years,  for example,  does the rate  ever get                                                               
reviewed to reflect the different capital structure?                                                                            
                                                                                                                                
MR. CUPINA  answered that the  rate base starts with  the capital                                                               
cost  itself.   Although  the debt-equity  ratio will  ultimately                                                               
determine the  rate of  return on equity,  it doesn't  affect the                                                               
capital cost.                                                                                                                   
                                                                                                                                
SENATOR STEDMAN requested clarification.                                                                                        
                                                                                                                                
MR. LOEFFLER explained  that generally rates are  based on costs,                                                               
looking at  the amount of capital  invested in the project.   The                                                               
rate on  debt is picked  up off  of the actual  debt instruments;                                                               
the rate  on equity is  set by FERC,  based on risks  the project                                                               
faces.     Typically,  the  FERC  staff   extracts  a  settlement                                                               
condition, that rates  be reviewed within three  years of startup                                                               
of  the operation.   Debt-equity  ratios do  change over  time as                                                               
debt  is  paid down  on  the  project.   He  interpreted  Senator                                                               
Stedman's concern to  be this:  Why isn't a  credit given for the                                                               
plant or the pipeline relevant to the determination of the cost?                                                                
                                                                                                                                
SENATOR STEDMAN said  that was close.  He noted  there has been a                                                               
lot of  discussion about  the impact on  the equity  position and                                                               
any alterations of that.  He provided details.                                                                                  
                                                                                                                                
MR. LOEFFLER answered that as  shippers come in to complain about                                                               
rates, causing a review, looked  at is whether the current equity                                                               
rate of  return is justified; that  could change over time.   For                                                               
example,  it  could be  said  that  for operating  pipelines,  it                                                               
doesn't survive the  construction risk; if it is  successful as a                                                               
venture, it gets a lower rate of return.                                                                                        
                                                                                                                                
He noted shippers  and pipelines fight about such  issues all the                                                               
time;  it's  open for  review.    As  to whether  the  integrated                                                               
company would  be looked at  - seeing  benefits on one  side that                                                               
reduce the  cost of investment on  the other side -  Mr. Loeffler                                                               
said  this  is  typically  where   FERC  looks  at  the  pipeline                                                               
investment, rather the  production side.  He added  that he could                                                               
see how  shippers could  construct an argument  of what  the true                                                               
cost is, but normally those jurisdictional lines are followed.                                                                  
                                                                                                                                
12:00:40 PM                                                                                                                   
SENATOR STEDMAN asked whether the  following is accurate:  If the                                                               
tariff is set on the equity  position when a company builds a GTP                                                               
or  gas  line,  any  alterations  of  that  equity  position  get                                                               
reviewed periodically; if  there is future divestiture  by one or                                                               
more owners, then  that rate structure would  be reviewed because                                                               
most  likely there  would be  a different  debt-equity structure.                                                               
Or if there is a decision to  build it with 60 percent equity and                                                               
40 percent  debt  and  then  flip   it  to  80-20,  it  would  be                                                               
readjusted.  In the end, rates  are set on the equity position as                                                               
it  changes  over time,  regardless  of  divestiture or  leverage                                                               
changes.                                                                                                                        
                                                                                                                                
MR.  KEITHLEY answered  that FERC  comes at  this issue  from two                                                               
different  perspectives.   First, it  starts with  the pipeline's                                                               
costs and debt-equity ratio on its  books.  If FERC believes that                                                               
is  unrepresentative  of  the  pipeline   industry  as  a  whole,                                                               
however,   it  has   in  the   past  imposed   what  FERC   calls                                                               
"hypothetical  capital  structures"  on  the  pipeline,  and  has                                                               
calculated  rates assuming  the  pipeline had  a certain  capital                                                               
structure.  The owner doesn't  have the ability to manipulate its                                                               
capital  structure in  a way  that produces  rates that  it might                                                               
prefer;  the commission  has the  ability to  restate those  in a                                                               
fashion  that would  maintain  rates  at a  level  produced by  a                                                               
typical pipeline.                                                                                                               
                                                                                                                                
12:02:53 PM                                                                                                                   
SENATOR STEDMAN  asked:  How  often has a capital  structure been                                                               
dictated to gas-line owners around the country?                                                                                 
                                                                                                                                
MR.  KEITHLEY  deferred  to  Mr.   Cupina,  but  said  he'd  seen                                                               
hypothetical capital  structures in perhaps  30 to 40  percent of                                                               
the cases he'd  looked at.  He  noted a pipeline may  be a wholly                                                               
owned  affiliate of  a  parent  company that  is  in an  entirely                                                               
different business  or a  variety of  businesses, with  a capital                                                               
structure  reflecting  that  mix;  the commission  may  impose  a                                                               
hypothetical  capital  structure  to deal  with  that  situation.                                                               
It's not 100 percent, but not infrequent.                                                                                       
                                                                                                                                
MR.  CUPINA said  he  believed Mr.  Keithley's  last comment  was                                                               
fair.    Noting  capital  structures vary  somewhat  but  not  to                                                               
extremes, he indicated 60-40, 50-50  and 55-45 are fairly typical                                                               
structures.                                                                                                                     
                                                                                                                                
MR.  LOEFFLER   reported  he'd  submitted  a   study  on  capital                                                               
structure as  of June  2004 to the  Legislative Budget  and Audit                                                               
Committee, relating  to perhaps  50 recent  FERC cases  and their                                                               
capital structures and rates of  return; they cluster in a range.                                                               
He suggested his report could  be obtained and resubmitted if the                                                               
committee so desired.                                                                                                           
                                                                                                                                
12:04:43 PM                                                                                                                   
^Bill McMahon, ExxonMobil                                                                                                       
S.A.  (BILL) McMAHON,  JR.,  Alaska  Gas Development,  ExxonMobil                                                               
Production  Company, offered  clarification with  respect to  the                                                               
credit:    The  commitment  allowance  that  started  this  whole                                                               
conversation  is  something  the  state is  making  available  to                                                               
shippers of  gas who make the  FT commitment required to  get the                                                               
pipeline  built.   He  said  the state  had  envisioned it  being                                                               
available to the three sponsors  through the fiscal contract, and                                                               
to  other  producers  on  the North  Slope  through  the  uniform                                                               
upstream  fiscal  contract  that  is envisioned.    It  is  truly                                                               
divorced   from  the   pipeline  structure.     Not   only  would                                                               
ExxonMobil, BP  and ConocoPhillips be eligible,  but others could                                                               
make themselves eligible by committing in the open season.                                                                      
                                                                                                                                
SENATOR BEN  STEVENS pointed  out Mr. Cupina  was being  asked to                                                               
comment  on what  FERC would  do with  respect to  elements of  a                                                               
contract  he hadn't  seen, and  that hadn't  been finalized.   He                                                               
suggested the  answers would  be determined by  FERC once  it had                                                               
the  complete  submittal of  the  application  and the  financing                                                               
structure.                                                                                                                      
                                                                                                                                
He said the  incentive for investment via the  tax credit against                                                               
the  petroleum  production  tax  (PPT)  was  exactly  that  -  an                                                               
incentive.     Recalling  hours  of  discussion   on  whether  an                                                               
incentive should apply to a  FERC-regulated facility, and whether                                                               
the  incentives and  credits  should be  passed  on to  shippers,                                                               
Senator Ben Stevens  said it became evident it was  almost a wash                                                               
for the  state:  either  the credit  and sacrifice would  be made                                                               
up front and the money received  back through lower tariff costs,                                                               
or there would be no credit  and the money would be received back                                                               
through higher tariff costs.                                                                                                    
                                                                                                                                
He  also recalled  that the  position in  opposition to  why FERC                                                               
should be  mandated to roll  in those investment tax  credits was                                                               
from the  basis of an  independent producer and shipper  that had                                                               
made  no  investment.    Senator   Ben  Stevens  emphasized  that                                                               
Mr. Cupina didn't have all the information.                                                                                     
                                                                                                                                
MR. CUPINA expressed appreciation for  that, noting at the outset                                                               
he'd told  members he didn't want  to wade into the  stranded gas                                                               
contract, since  FERC is unaware of  most of its provisions.   He                                                               
agreed  conceptually, however,  with the  speaker who'd  said the                                                               
transportation  rate would  stand on  its own;  he mentioned  the                                                               
costs  that went  into  the rate,  rates  of return,  debt-equity                                                               
ratios and so forth.                                                                                                            
                                                                                                                                
12:10:13 PM                                                                                                                   
SENATOR WILKEN  told Mr. Cupina he  was trying to get  a sense of                                                               
where the  Alaska gas  pipeline project  is in  supplying America                                                               
with gas,  which he  believes is needed.   Noting  EPAct required                                                               
federal  agencies to  band together  and have  three meetings  on                                                               
liquefied  natural gas  (LNG) by  August 2006,  he asked  whether                                                               
FERC  participated  in those.    He  also requested  a  thumbnail                                                               
sketch of the  meetings and results, and asked where  to obtain a                                                               
summary.                                                                                                                        
                                                                                                                                
MR.  CUPINA answered  that those  meetings were  the task  of the                                                               
U.S.  Department of  Energy (DOE),  and  FERC participated  along                                                               
with other agencies.   He said EPAct required a  minimum of three                                                               
meetings,  and   three  were  held,  in   Boston,  Massachusetts;                                                               
Astoria,  Oregon;  and  Los   Angeles,  California.    Additional                                                               
meetings  are  possible.    Mr.  Cupina  recalled  either  recent                                                               
testimony or trade  articles about the outcome,  noting they were                                                               
dubbed  "LNG  forums";  the  purpose   was  to  help  communicate                                                               
unvarnished  facts   and  science   to  the  public   and  public                                                               
officials, rather than advocate for any particular project.                                                                     
                                                                                                                                
He reported  that the results  seemed good  as far as  they went,                                                               
but  from what  he'd read  coming from  DOE, DOE  hadn't believed                                                               
those  who were  opposed to  LNG were  persuaded to  change their                                                               
minds.  Mr. Cupina indicated a  FERC person made presentations as                                                               
part of the  forums, and would do so in  any additional meetings.                                                               
He  offered  to  follow  up  as far  as  executive  summaries  of                                                               
meetings  already   held,  and   indicated  summaries   might  be                                                               
available on DOE's website under the Office of Fossil Energy.                                                                   
                                                                                                                                
12:13:28 PM                                                                                                                   
SENATOR  WILKEN  observed that  FERC's  July  report to  Congress                                                               
talked  about  a  meeting  with  steel  producers  about  design,                                                               
testing,  manufacturing  and so  forth  for  pipe for  an  Alaska                                                               
project.   He asked Mr.  Cupina about the results,  including how                                                               
it  might relate  to the  Mackenzie Valley  pipeline and  how the                                                               
industry feels about supplying steel for two major pipelines.                                                                   
                                                                                                                                
MR.  CUPINA said  he  didn't  recall getting  into  the issue  of                                                               
supplying both  projects.   They'd wanted  to talk  about higher-                                                               
tensile-strength steel  and ensuring  everything is  certified by                                                               
the Department of  Transportation (DOT) as part of  working up to                                                               
whatever   steel  is   needed  for   an  Alaska   project.     He                                                               
characterized it as a technical session, a courtesy meeting.                                                                    
                                                                                                                                
12:15:20 PM                                                                                                                   
SENATOR  WILKEN asked  whether  it  is assumed  by  all that  the                                                               
Mackenzie  Valley  pipeline  and  the  Alaska  pipeline  couldn't                                                               
happen concurrently.                                                                                                            
                                                                                                                                
MR. CUPINA mentioned logistics,  skills, resources and materials,                                                               
saying there seems  to be some question about  whether both could                                                               
be done at  exactly the same time.  He  reported hearing that the                                                               
Mackenzie Valley project would be  done earlier, which is hard to                                                               
gauge at this time.                                                                                                             
                                                                                                                                
SENATOR WILKEN  asked where supplying  America with  Alaska's gas                                                               
is in  the pecking order.   Noting page 13 of  the aforementioned                                                               
report talks  about 23 projects,  he said it appears  today about                                                               
60  Bcf a  day  is  consumed, projected  to  be  80 Bcf by  2025.                                                               
Surmising  the  additional  20  Bcf wouldn't  be  from  Lower  48                                                               
production,  he highlighted  four groups  of proposals  on FERC's                                                               
table:  the Alaska project;  11 that were approved, LNG terminals                                                               
to supply  about 20 Bcf;  an expansion  of 2 that  were existing,                                                               
1 that  was under  construction  and 1  that  was operating,  for                                                               
another  2 Bcf;  and  then  10 that  were  proposed, which  would                                                               
contribute 11.5 Bcf.                                                                                                            
                                                                                                                                
He estimated  the aforementioned  would total 39  Bcf, if  all 23                                                               
projects  were  built,  whereas  only 20  Bcf  would  be  needed.                                                               
Senator  Wilken   requested  a   definition  of   "approved"  and                                                               
"proposed" in  this context.   When FERC has  approved something,                                                               
for example,  where is that  in the  sequence of building  an LNG                                                               
receiving plant and processing plant?                                                                                           
                                                                                                                                
12:18:40 PM                                                                                                                   
MR. CUPINA replied  it is probably the biggest  step, a necessary                                                               
but not totally sufficient step  because everything FERC approves                                                               
still  must meet  conditions related  to  other federal  statutes                                                               
such as the  Coastal Zone Management Act, Clean Air  Act or Clean                                                               
Water  Act, administered  by the  states; applicants  usually are                                                               
successful  in  meeting  those.    Although there  is  a  lot  of                                                               
activity,  with  investment  occurring  and  relationships  being                                                               
formed, all 20-some  projects won't be built;  rather, the market                                                               
will sort them out.   Typically, the construction timetable is at                                                               
least 33 months from the  start of construction, perhaps 6 months                                                               
after FERC approval.                                                                                                            
                                                                                                                                
SENATOR  WILKEN  asked  whether  the Alaska  project  is  in  the                                                               
"approved" category.                                                                                                            
                                                                                                                                
MR.  CUPINA  answered  it  isn't even  "proposed"  yet;  that  is                                                               
preceded  by  the  "prefiling"  stage; then  there  would  be  an                                                               
application  for  the  certificate.    In  further  response,  he                                                               
emphasized that  even though  a project  is already  approved, it                                                               
might not be built for quite a while - or at all.                                                                               
                                                                                                                                
SENATOR  WILKEN asked  where Alaska's  4 or  5 Bcf  fits in  with                                                               
respect to supplying mid-America with gas.                                                                                      
                                                                                                                                
MR. CUPINA  expressed hope that  it would be  part of the  mix to                                                               
supply  the  80-some Bcf  projected.    In further  response,  he                                                               
indicated the  5 projects under  construction are in the  Gulf of                                                               
Mexico; some of  the 11 that are approved are  on the East Coast.                                                               
As far  as what gas goes  to which part of  the country, however,                                                               
he said it  isn't clear-cut, especially with the  hubs and market                                                               
centers  and  the way  gas  can  move increasingly  in  different                                                               
directions.                                                                                                                     
                                                                                                                                
12:23:52 PM                                                                                                                   
SENATOR BEN  STEVENS recalled hearing  testimony from  the Alaska                                                               
Gasline  Port Authority  ("Port Authority")  that its  project is                                                               
approved and  ready to  go with respect  to the  Valdez terminal.                                                               
He asked whether that is included as proposed or approved.                                                                      
                                                                                                                                
MR. CUPINA replied  no.  He clarified that a  predecessor to that                                                               
project,  Yukon Pacific  Corporation (YPC),  was approved  by the                                                               
commission at least 15 years ago.                                                                                               
                                                                                                                                
SENATOR BEN STEVENS asked whether the  YPC project is listed as a                                                               
proposed or approved project.                                                                                                   
                                                                                                                                
MR. CUPINA  answered no.   In further response, he  indicated the                                                               
listed terminals  are import  terminals, bringing  gas in  to the                                                               
Lower 48.   However, the  YPC project at  the time was  to export                                                               
gas.  The gas-line proposal  being contemplated now would, to his                                                               
understanding, bring  gas to the  Lower 48, but that  hasn't been                                                               
before FERC.   He  noted when  FERC approved  the YPC  project an                                                               
evaluation was made - by the  U.S. Department of the Interior, to                                                               
his belief  - on environmental  impacts of the  pipeline upstream                                                               
of  Valdez,  to bring  the  gas  to  the  terminal before  it  is                                                               
liquefied.    Possibly  some  analysis  from  that  environmental                                                               
impact statement  (EIS) is still  valid, but  it was a  long time                                                               
ago.  The project as contemplated today isn't before FERC.                                                                      
                                                                                                                                
CHAIR  SEEKINS surmised  the Port  Authority project  cannot just                                                               
assume the YPC approval, but must seek its own.                                                                                 
                                                                                                                                
MR.  CUPINA  said he  believed  so,  and some  circumstances  are                                                               
different  because the  previous project  was an  export project,                                                               
while this one would bring gas to  the Lower 48; thus it would be                                                               
interstate commerce, not foreign commerce.                                                                                      
                                                                                                                                
SENATOR WILKEN, in response to  Chair Seekins, clarified that his                                                               
own question  hadn't related  to the  Valdez project;  rather, he                                                               
was trying  to figure out  where the larger  project fit in.   He                                                               
asked whether the website shows  the status and capacity of those                                                               
23 projects.                                                                                                                    
                                                                                                                                
MR.  CUPINA  affirmed  that.     He  explained  that  the  report                                                               
highlights not  so much  that demand will  be satisfied  by these                                                               
projects,  but  the importance  of  being  in the  game,  gaining                                                               
headway in  order to be  part of  the ongoing dynamic  to satisfy                                                               
the need.  It is by no  means certain where all these pieces will                                                               
end up just because they are approved or proposed.                                                                              
                                                                                                                                
12:30:14 PM                                                                                                                   
CHAIR SEEKINS  asked whether some  of these projects  approved by                                                               
FERC have run into opposition from the states.                                                                                  
                                                                                                                                
MR. CUPINA  replied yes.   For  example, in  Massachusetts they'd                                                               
been informed of opposition by public and state officials.                                                                      
                                                                                                                                
SENATOR  STEDMAN said  Senator Wilken's  points about  the report                                                               
were good,  but he'd read it  more as "the window  of opportunity                                                               
is not going to stay open forever  for Alaska, and we need to get                                                               
our house in  order and get to market before  a competitor does."                                                               
He suggested delays of three or  four years would create an issue                                                               
with that window of opportunity.                                                                                                
                                                                                                                                
SENATOR  THERRIAULT  reported that  his  office  had e-mailed  to                                                               
committee members  several pages  received from Dr.  Tony Finizza                                                               
of Econ  One Research, Inc.,  this morning.  That  document talks                                                               
about the  window of opportunity, noting  LNG and nonconventional                                                               
gas - from tight sands and  coal bed methane, for instance - fill                                                               
the  market  differential, but  likely  would  be the  first  gas                                                               
pushed  out  of  the  market by  other  supplies,  including  the                                                               
proposed Alaska project.                                                                                                        
                                                                                                                                
12:32:33 PM                                                                                                                   
MR.  CUPINA pointed  out although  the open  season is  one first                                                               
step, the  report also mentions  that the open season  could take                                                               
place after  the FERC  prefiling process  begins and  during that                                                               
process,  which could  save  six  months' time.    The staff  and                                                               
commission  could be  active in  developing  the application  and                                                               
working with the stakeholders; that  is where staff resources can                                                               
really  be brought  to bear  in helping  to develop  the project.                                                               
Thus FERC sees  the beginning of the prefiling process  as a more                                                               
important milestone than completing the open season beforehand.                                                                 
                                                                                                                                
He   explained,   in  response   to   Mr.   Loeffler,  that   the                                                               
aforementioned is  in the  regulations for LNG,  but also  in the                                                               
guidelines at FERC.gov for pipeline projects.   It is part of the                                                               
process  to identify  issues  as  early as  possible  and try  to                                                               
resolve them up front, bringing  all stakeholders in.  Mr. Cupina                                                               
reported good  results from  this, and said  Congress saw  fit to                                                               
make  it mandatory  for  LNG  projects because  of  the level  of                                                               
public  involvement.   It is  prefiling, before  the application.                                                               
In  further  response,  he indicated  sponsors  of  gas  pipeline                                                               
projects are  strongly encouraged to  use this option.   The goal                                                               
is  to cut  the time  and produce  a better  EIS, so  everybody's                                                               
concerns are addressed.                                                                                                         
                                                                                                                                
12:37:42 PM                                                                                                                   
MS.  NEWMAN pointed  out that,  as a  matter of  law, contracting                                                               
parties cannot confer  jurisdiction on FERC if  FERC doesn't have                                                               
it.   She  agreed with  Mr. Keithley  that FERC  historically has                                                               
accepted   jurisdiction   over   facilities  -   even   gathering                                                               
facilities, exempt  from its jurisdiction  by statute -  and then                                                               
issued  rates  after  concluding  this  was  in  connection  with                                                               
interstate  transportation.    However, a  District  of  Columbia                                                               
Circuit  decision,  written  by now-Justice  John  Roberts,  said                                                               
although  everyone   had  requested  jurisdiction   over  certain                                                               
facilities,  it  didn't exist  and  couldn't  be asserted  unless                                                               
Congress changed the law.                                                                                                       
                                                                                                                                
She  noted  the  question  becomes whether  some  facilities  fit                                                               
within the letter  of the law; this depends on  what they are and                                                               
how they're used, and a body  of law defines which facilities are                                                               
and aren't  FERC-jurisdictional under the Natural  Gas Act and/or                                                               
ANGPA,  if it  confers something  different.   It isn't  certain,                                                               
just  because FERC  does it,  that it  will survive.   As  to who                                                               
could or would  challenge it, Ms. Newman didn't  have the answer.                                                               
It depends on  who is bound by  the commitment to go  to FERC and                                                               
request FERC  jurisdiction; then it  depends on whether  FERC, in                                                               
light of the  recent District of Columbia  Circuit decision, will                                                               
assert  jurisdiction  over  something   it  doesn't  really  have                                                               
jurisdiction over.  It will be a  matter of law that decides it -                                                               
not a matter of preference.                                                                                                     
                                                                                                                                
CHAIR SEEKINS asked what Ms. Newman proposed as a solution.                                                                     
                                                                                                                                
MS. NEWMAN suggested if everyone  wants to confer jurisdiction on                                                               
FERC  over particular  facilities, perhaps  FERC should  be asked                                                               
for  guidance as  to whether  facilities that  can be  adequately                                                               
described  at that  point  are  FERC-jurisdictional, rather  than                                                               
waiting until the application is filed.                                                                                         
                                                                                                                                
CHAIR  SEEKINS asked:    If the  gas  transmission lines  weren't                                                               
subject to  FERC jurisdiction, would  they be  under jurisdiction                                                               
of the Regulatory Commission of Alaska (RCA)?                                                                                   
                                                                                                                                
MS. NEWMAN replied it would depend on Alaska Statutes.                                                                          
                                                                                                                                
MR. LOEFFLER noted it's a whole separate analysis.                                                                              
                                                                                                                                
MS. NEWMAN  agreed, indicating  if Alaska  conferred jurisdiction                                                               
to an  Alaskan regulatory  body over facilities  used in  the way                                                               
these facilities would  be used, the answer would be  yes.  If it                                                               
didn't, the answer  would be no.  Then  theoretically there would                                                               
be no regulation.                                                                                                               
                                                                                                                                
12:41:36 PM                                                                                                                   
CHAIR SEEKINS acknowledged  he isn't a lawyer,  but remarked that                                                               
from reading the  law it appears they must be  under some kind of                                                               
regulation.                                                                                                                     
                                                                                                                                
MS. NEWMAN responded that, as  a practical matter, this isn't the                                                               
case.  Facilities fall between the cracks.                                                                                      
                                                                                                                                
MR. LOEFFLER agreed  with Ms. Newman, but pointed out  that a lot                                                               
of facts aren't known today.                                                                                                    
                                                                                                                                
CHAIR SEEKINS asked:   Regardless of who owns  the project, would                                                               
the same questions arise at the same level?                                                                                     
                                                                                                                                
MS.  NEWMAN affirmed  that, saying  what dictates  jurisdictional                                                               
status is the nature of the facilities and how they are used.                                                                   
                                                                                                                                
CHAIR SEEKINS posed  a situation in which  the transmission lines                                                               
are found not subject to FERC  regulation.  He surmised a company                                                               
perhaps could charge whatever rate  it wanted for access to those                                                               
lines by any willing shipper.                                                                                                   
                                                                                                                                
MR. LOEFFLER  emphasized "perhaps," noting they  could be subject                                                               
to  regulation.   There  are  divisions  among field  facilities,                                                               
gathering lines,  transmission lines and  interstate transmission                                                               
lines.  It gets complicated.                                                                                                    
                                                                                                                                
CHAIR SEEKINS suggested if those  were built by ConocoPhillips or                                                               
BP, for  instance, that company  perhaps would  determine whether                                                               
there was access and at what  cost, regardless of who the shipper                                                               
downstream was.                                                                                                                 
                                                                                                                                
MR. LOEFFLER replied, "Perhaps."                                                                                                
                                                                                                                                
MS.  NEWMAN,   in  response  to   Chair  Seekins,   agreed  these                                                               
jurisdictional issues aren't project-specific.   She couldn't say                                                               
right now,  with the limited  information she'd seen,  whether or                                                               
not  the facilities  linking the  gathering system  to the  plant                                                               
would be under FERC jurisdiction.   Ms. Newman offered her belief                                                               
that FERC  has indicated,  if there is  a conditioning  plant and                                                               
the desire  is for an unbundled  rate, that there would  still be                                                               
the jurisdictional  step of determining whether  the conditioning                                                               
plant  itself is  jurisdictional.   "They  may be  very close  to                                                               
that, conceptually, already," she added.                                                                                        
                                                                                                                                
CHAIR SEEKINS  referred to testimony  about strict  rules against                                                               
anticompetitive actions, and strict  penalties if such activities                                                               
are detected relating to facilities and pipes regulated by FERC.                                                                
                                                                                                                                
MR. CUPINA noted those were covered  by Mr. Pease with respect to                                                               
EPAct authorities and FERC enforcement.                                                                                         
                                                                                                                                
12:46:48 PM                                                                                                                   
SENATOR  BEN STEVENS  expressed concern  about encroaching  on an                                                               
individual   owner's  right   to   operate  a   facility.     One                                                               
hypothetical example involved  a unit owned by  a consortium that                                                               
doesn't want to invest in a pipeline  to the GTP, but wants to go                                                               
to  FERC and  request mandatory  access  to a  pipeline built  by                                                               
owners of  three other  units.   He voiced  concern that  even if                                                               
FERC didn't have jurisdiction, someone  could petition for it, to                                                               
obtain  access control  or to  circumvent the  need to  invest in                                                               
one's own  facilities to  get to  the GTP.   He said  it's either                                                               
FERC-regulated or owner-operated; if  the latter, they don't have                                                               
to give access to anyone unless there is a negotiated agreement.                                                                
                                                                                                                                
MS. NEWMAN acknowledged that.                                                                                                   
                                                                                                                                
MR. LOEFFLER explained that if it  is a unit facility, a pipeline                                                               
within a  unit, FERC  usually doesn't touch  it.   Although there                                                               
have been historic  questions about access to  unit facilities by                                                               
smaller parties, the contract doesn't  touch that or intend to do                                                               
so.  If a company builds a pipeline  to ship just its own gas and                                                               
it isn't  FERC-jurisdictional, to  his understanding,  RCA's view                                                               
has been  this:  If  it isn't offered  to someone else,  "you can                                                               
keep it to yourself."  Even that  area of law with respect to RCA                                                               
is evolving, however.  Mr.  Loeffler surmised a 100-mile pipeline                                                               
feeding into the main line and  going out of state would be FERC-                                                               
jurisdictional, and then the open  season and access requirements                                                               
would apply.                                                                                                                    
                                                                                                                                
MR. KEITHLEY  added that BP -  and probably the other  parties to                                                               
the proposed contract - looked at  the lines from the unit to the                                                               
GTP and  onward, under  applicable FERC  law, and  concluded they                                                               
are  validly FERC-jurisdictional.   They  aren't saying  FERC has                                                               
jurisdiction  simply  because all  the  parties  agree, and  they                                                               
aren't  proposing  that  FERC take  jurisdiction  over  something                                                               
questionable.   Mr. Keithley  said  he didn't  want  to get  into                                                               
future lines that may or may not be FERC-jurisdictional.                                                                        
                                                                                                                                
12:53:08 PM                                                                                                                   
CHAIR  SEEKINS   highlighted  the  concern  of   not  wanting  an                                                               
anticompetitive  situation,  but  also  not   wanting  it  to  be                                                               
punitive towards someone who already made the investment.                                                                       
                                                                                                                                
MS. NEWMAN  raised the  question of the  rate structure  and what                                                               
happens if the capital structure  changes tomorrow, for instance.                                                               
She explained  that the  FERC process works  through a  series of                                                               
sections  in the  Natural Gas  Act.   Section  7 establishes  the                                                               
initial rate  for the  service to  be offered,  in this  case the                                                               
pipeline.   The  second step  is that  FERC usually  conditions a                                                               
brand-new facility on  its coming in, in three years,  for a rate                                                               
justification; this affects  a tariff rate, but  not a negotiated                                                               
rate under a contract with shippers.                                                                                            
                                                                                                                                
She noted  the next  step is a  possible rate-increase  filing by                                                               
the pipeline  under Section  4.  However,  pipelines in  the U.S.                                                               
for the  last 15-20 years  haven't filed rate cases.   Ms. Newman                                                               
said the only  alternate is Section 5, a  complaint process filed                                                               
by FERC  or a shipper;  providing prospective relief only,  it is                                                               
rare, though  seen in the  past year because pipeline  rates have                                                               
gotten so out of whack.  Once  the rates are set in a certificate                                                               
case and go through the  rate justification, they are only likely                                                               
to change  if the pipeline  makes a  filing.  Since  FERC doesn't                                                               
review things  as a  matter of  course to see  if there  is over-                                                               
earning, someone must take initiative to trigger the proceeding.                                                                
                                                                                                                                
CHAIR  SEEKINS  asked whether  there  were  further questions  or                                                               
clarifications.   Hearing none, he thanked  participants and held                                                               
SB 3001 and SB 3002 over.                                                                                                       

Document Name Date/Time Subjects