Legislature(2001 - 2002)
04/15/2002 03:40 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 360-ALASKA NATURAL GAS PROJECT ACT
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:40 p.m. and announced SB 360 to be up for
consideration. Senators Wilken, Halford, Stevens, Elton and
Chairman Torgerson were present. He said the committee would take
testimony by invitation only today and that the bill had some
structural problems that needed to be worked on before he brought
it up again on Wednesday.
MR. DARWIN PETERSON, staff to Senator Torgerson, read the sponsor
statement as follows:
SB 360 seeks to expedite the construction and operation
of an Alaska gas line from the North Slope south
through Canada to the Lower 48 or to Alaska tidewater
for shipment as LNG. It provides fiscal incentives and
permitting benefits to those project sponsors who are
willing to work with the state of Alaska to insure:
· Opportunities for employment of Alaskans and
Alaskan businesses are maximized;
· Potential instate demand for gas from the project
can be satisfied;
· Competition and the exploration of development of
northern Alaska gas is promoted.
Currently a project sponsor for a pipeline right-of-way
lease to construct a pipeline from the North Slope can
proceed under the provisions of the Alaska Pipeline
Right-of-Way Leasing Act. However, these provisions and
other provisions of Alaska law will be modified for a
sponsor who agrees to do the following:
· Train and hire Alaskans and use Alaska businesses
in the construction and operation of the project
to be consistent with constitutional provisions;
· Complete a study on instate demand and submit a
plan that must be approved by the RCA to meet that
demand;
· Complete a study on natural gas resources in
Northern Alaska and submit a plan that must be
approved by the RCA to maximize access to the
project so that competition in the Alaska oil and
gas industry is promoted;
· Update those demand and resource studies 10 years
after construction of the project starts;
· Agree to provisions in the right-of-way lease
providing for instate use of royalty gas and
expansion of the project.
If a project sponsor gets certifications from the
appropriate agencies that the sponsor will or has done
all of the above, the sponsor gets the following
expeditious treatment in obtaining authorizations to
construct and operate the project:
· The project may be phased under both the Right-Of-
Way Leasing Act and the Coastal Zone Management
Act.
· All agencies must give full cooperation to the DNR
commissioner on project matters by providing
information and by issuing any necessary
authorizations at the earliest practical date on
an expedited basis and with precedence over any
like matter pending before the agency.
· Any authorization may be amended as necessary to
further the purposes of the Act.
· If the Governor finds a provision of law that
impedes the project, he may propose a waiver of
law.
· Any decisions by the commissioner and other
agencies shall be subject to limited judicial
review only and such claims must be brought within
60 days.
· The Department of Revenue commissioner may waive,
reduce or defer all or a portion of the property
tax payments relating to the project and the
Department of Natural Resources commissioner can
do the same for royalty payments. The
commissioners can only offer these incentives if:
a) the project would not otherwise be economically
feasible; b) an agreement is made to begin
construction by a certain date; and c) the
legislature approves.
· The Alaska Railroad Corporation [ARRC] may provide
tax exempt financing for this project. Any project
sponsor can proceed to apply for a right-of-way
lease under the current Alaska Pipeline Right-Of-
Way Leasing Act without obtaining the certificates
outlined in this bill. They will not, however, be
eligible for any of the incentives this
legislation offers.
MR. PATRICK COUGHLIN, consultant to the Senate Resources
Committee, explained that the first three sections of the
bill are general provisions. Section 1 sets forth the short
title and Section 2 sets forth the findings regarding
amendments to the Right-Of-Way Leasing Act. The findings
include a discussion of the various pipeline proposals, the
benefits to Alaska from instate use of gas, from hiring
Alaskans and contracting with Alaska businesses to work on a
project, and from the need for competition in the upstream
portion of the Alaska gas industry.
Section 3 sets forth the findings regarding the
appropriateness of the Alaska Railroad Corporation's
issuance of financing to benefit an Alaska Natural Gas
project.
Section 4 deals with changes to the Alaska Land Act,
specifically changes to be made to the provisions of any
royalty lease or royalty obligation. This section provides
that if an applicant/lessee obtains the certificates
required by new AS 38.35.240, then the commissioner may
modify any provision in the oil and gas lease that impedes
the project. Additionally, the commissioner may reduce the
royalty if certain conditions are met. The commissioner must
consider whether other jurisdictions are giving incentives
to move the project forward, whether the applicant has
provided by clear and convincing evidence that the project
would not otherwise be economically feasible, and whether
the applicant has agreed to a date certain to begin
construction of the project. However, royalty reduction
could not take place unless it was approved by the
legislature.
Section 5 deals with the Right-Of-Way Leasing Act provisions
and adds a new group of sections to the Right-Of-Way Leasing
Act.
The first new section sets forth the Act's purposes:
1. To expedite a project consistent with insuring that the
people of Alaska get the maximum benefits possible;
2. To insure access to the project by oil and gas companies
that do not have an ownership interest in the project and to
promote competition in the upstream industry;
3. To insure access to the state's royalty gas for Alaskans
and Alaska businesses;
4. To insure employment of Alaskans and the use of Alaskan
firms in connection with the project.
MR. COUGHLIN explained the new provision, AS 38.35.240,
describes the actions that an applicant must take before the
applicant is eligible for the benefits provided by the Act.
If the applicant's actions meet certain standards, then the
applicable agency will issue a certificate of approval. To
expedite the process the agency must conduct a hearing and
act within 90 days of receiving a request for a certificate.
The required actions are as follows.
1. The applicant must submit a showing of how the applicant
will use best efforts to train and employ state residents
and whenever feasible will contract with firms in connection
with the project.
2. The applicant must study instate demands [indisc.]
showing how the plan will maximize the opportunities for
access to state royalty gas transported in the project.
3. The applicant must study potential gas resources in
northern Alaska and [indisc.] how the applicant's plan and
design of the project will maximize the opportunities for
access to initial and expansion on the project.
4. The applicant must update the demand and supply studies
10 years after the construction of the project starts.
5. The applicant must agree to lease stipulations providing
that the applicant will provide access to the state to ship
its royalty gas for use within the state and will use best
efforts to get appropriate authorizations to effectuate such
shipments, but the applicant must seek expansion of the
pipeline from the appropriate federal agency if the
Regulatory Commission of Alaska determines that expansion of
the pipeline is in the best interests of the state and that
other criteria are met.
MR. COUGHLIN said:
There is a new section, AS 38.35.245, that provides if
an applicant/lessee obtains the certificates we just
talked about, then the DNR commissioner may phase the
lease application process.
There is a new section, AS 38.35.250 that provides that
if an applicant/lessee obtains their certificates
above, all other agencies involved in the permitting of
the project must give their full cooperation to the DNR
commissioner. They must do this by assembling and
furnishing all requested information, issuing necessary
authorizations at the earliest practical date, and
amending any authorization as necessary.
Section, AS 38.35.255, a new section, provides that the
governor may ask the legislature for a waiver of law if
any applicable provision of law constitutes an obstacle
to the expeditious construction of the project.
AS 38.35.257, also new, provides again that if an
applicant/lessee has obtained certificates, judicial
review of decisions made or actions taken under the act
is limited to claims that can be brought under AS
38.35.200 and such claims must be made within 60 days
after the decision or act.
AS 38.35.259 defines various terms used throughout the
act.
The next group of amendments makes changes to the law
that address Alaska Railroad Corporation provisions,
Sections 6 - 9. Section 6 amends the general powers of
the Alaska Railroad Corporation to give it authority to
provide financing for the project. Section 7 provides
that the bonds issued by the Railroad for the project
are for an essential public and governmental purpose.
Section 8 provides that before issuing bonds for the
project, the Railroad must enter into an agreement to
insure that the bond's principal and interest will be
paid timely, reserves will be sufficient for the
required payments and all costs related to the bonds
will be paid by an entity other than the corporation.
Finally, Section 9 provides, again, that if an
applicant/lessee has obtained the required
certificates, the Railroad may issue bonds to an
applicant to finance the construction of the project
and related facilities. The maximum amount of the bonds
is set at $18 billion.
Section 10 deals with oil and gas taxes. This section
provides, again, that if an applicant/lessee obtains
the required certificates, the DOR commissioner may
reduce taxes, defer them, or alter any taxes levied by
the state or municipality if the commissioner has
consulted with any affected municipality, prepares a
report on the socio-economic effects of the project on
any affected municipality, and has considered whether
other jurisdictions have granted incentives to make a
project happen.
Second, the applicant must demonstrate by clear and
convincing evidence that the project would not
otherwise be economically feasible without these
changes to the tax law and three, the applicant has
agreed to a date certain to begin construction of the
project. Again, any tax reduction or change to the tax
law would only be affected if approved by the
legislature.
Section 11 deals with changes to the Alaska Coastal
Management Program and provides that if an
applicant/lessee obtains the required certificates, the
person responsible for the consistency determination
for a project may phase purview of that project.
The uncodified provisions are Section 12, which just
provides that any constitutional challenge to this act
must be brought within 60 days after the act's
effective date. Section 13 provides that by passing
this act, the legislature is granting approval required
by AS 42.40.285 for the Railroad to issue bonds to the
project. And finally, Section 14 says the act takes
effect immediately.
CHAIRMAN TORGERSON said they are working on four amendments. One
will authorize the commissioner to enter into a contract for the
line similar to the Shallow Gas Leasing Act. They inadvertently
may have stopped some permitting that is going on by Foothills
and the pipeline companies, so the second amendment will contain
transition language to take care of that. The third amendment
pertains to questions raised about confidentiality during
negotiations. The Railroad bonding language was too restrictive
so that is being corrected in a fourth amendment. He explained
ARRC could charge a fee but couldn't spend it.
COMMISSIONER PAT POURCHOT, Department of Natural Resources (DNR),
said he also serves as chair of the Governor's Gas Pipeline
Cabinet and that the administration in general supports the
provisions of SB 360. It very closely tracks the ten principals
laid out by the Governor last year to advance the gas line. It
includes a number of recommendations from the Governor's Natural
Gas Policy Council and adopts an approach that they have always
envisioned in the framework of the Stranded Gas Development Act,
which SB 17, currently pending in the legislature, expands. It
also includes, as staff referenced, provisions of the Governor's
bill, SB 296, which authorizes the Alaska Railroad to issue tax-
exempt bonding for the gas line. It includes provisions that are
similar or parallel to provisions that the administration has
pushed for, which are now included in federal legislation. He
stated:
We are specifically supportive of provisions in the
bill requiring or advancing the southern route for
providing for future access to a gas line through
expansion, providing the ability to ship royalty gas
for instate use, provisions for Alaska hire and
training, provisions fostering instate economic
development and providing for RCA involvement.
Specific to the Department of Natural Resources, we are
supportive of the requirement in the bill that requires
a determination of economic need for any royalty
reductions or changes that would be responsible for
making the project economically viable. We also are
supportive of the phasing provisions that are similar,
by the way, that are now included in SB 308, which we
are supporting in that bill - and phasing, I might add,
that's unique and tied directly to the gas line and
appropriate because of the size and complexity and the
duration of the planning, permitting and construction
process. We also support the linkage granting right-of-
ways to certain conditions as spelled out in the act.
Mr. Chair, you mentioned several amendments. Just from
DNR's standpoint, we are very supportive of the
expansion criteria that are included in the bill which
are very similar to those that are now in the draft
federal legislation.
There were a couple of items I believe that were on the
top of page 8 of the draft that amend Title 38. We
would like to submit for your consideration some fairly
minor changes that we feel happen closer to the federal
provisions, but may provide a little clearer guidance
for us and we'd just like to submit those for your
consideration - that deal with a couple of the criteria
that [indisc.]. I would also like to add that we have
submitted a fiscal note. One would probably require
some specialized analysis and study to make this
economic feasibility determination. We would not intend
to do two separate studies. We would merge our efforts
there. They would clearly be looking at some of the tax
consequences. We would be looking at royalty and how
that may or may not affect overall project feasibility.
But we would be combining that effort….
CHAIRMAN TORGERSON said that he wanted to hear their ideas on the
expansion.
MS. BONNIE ROBSON, Deputy Director, Division of Oil and Gas, DNR,
said DNR would like to see a couple of provisions more precisely
mirror federal language. On page 8, line 2, she suggested
changing the word "will" to "designed to", which accurately
captures the intent.
She pointed out the second and third criteria contain a reference
to projects and later the definition of projects includes not
only pipelines but also a number of other facilities. They
understand the rationale for the broader definition, but do not
believe it should be so broad for expansion.
SENATOR ELTON said, according to the sectional analysis, they
would have the ability to reduce the royalty. He asked for an
example of a situation in which they would waive instead of
defer.
COMMISSIONER POURCHOT replied that isn't entirely clear:
There may be overlap between waived and reduce to
zero…I guess we take those three words all together as
a broad range of zero to some number just short of what
the royalty would be and possibly it could be over
time. Maybe there [are] different years of operation of
the project applying…
MR. LARRY PERSILY, Deputy Commissioner, Department of Revenue
(DOR), spoke to Section 10 of SB 360, which specifically deals
with the department's ability to waive, reduce and defer property
tax after insuring that the applicant has met the criteria set
out in the statute and said:
The Department of Revenue estimates, assuming a four-
year construction period for the pipeline, that you're
looking at about $280 million - $300 million in
property tax that would be assessed at the 20 mil rate
in statute on the construction, material and equipment
used in that four-year construction process. We would
estimate that that would split out at about 70% to the
state and 30% to the municipalities. For people who are
not familiar with it, the state has a property tax, but
only on oil and gas production property, not on other
property. That tax would begin to be assessed basically
as soon as the pipeline and other material hits the
dock. It does not have to be put into working order for
us to assess the property tax. So, under the statute as
it is written now, a project sponsor - project
developer - would have to pay property tax on the
components of a gas line before it's producing revenue.
Certainly, once the project is completed and it is
producing revenue, then the value of those assets go
up, because a steel pipe that has nothing moving
through it is worth a lot less than a pipe that has gas
in it working its way to market.
Anyway, during the four-year construction, we estimate
$280 million - $300 million of property tax at the 20
mil rate. Once it begins producing, we would estimate
for the first 10 years of the project average property
tax revenues against state and municipal share in total
would be about $100 million per year - again spread
about 70% to the state; 30% to the municipalities. Some
people may look at the $100 million number and say it
is significantly less than we receive off TAPS. One
reason for that is with TAPS we're collecting property
tax on Valdez facilities and there are no facilities.
We're assuming this would be a pipeline that would go
to an Alaska port and just keep going. Certainly, as we
look at this legislation, one option, if there was a
project sponsor that met the criteria, one option that
the department project sponsors and the legislature
could look at is doing waiver deferral or reduction of
just the state's share of property tax. You would not
have to do state and municipalities necessarily the
same way.
MR. PERSILY said they have no problems with the property tax
language in Section 10.
CHAIRMAN TORGERSON asked if the Governor's Gas Pipeline Council
did a study on the socio-economic effects.
MR. PERSILY replied that he didn't think so. Commissioner
Pourchot indicated that their fiscal note includes funds that
they could use for their portion of the studies with Dr. Pedro
Van Meurs. They would work with DNR to combine the work funded
under the two fiscal notes, so that there would be only one study
for the incentive issue.
SENATOR ELTON asked if the commissioner now has the power to
waive, reduce or defer the payment of all or any portion of the
tax levied by the state or the municipality - for example
property taxes on the oil pipeline or other circumstances to
waive municipal taxation.
MR. PERSILY replied that he didn't think they had any authority
to "just go out there and waive taxes." They need legislative
authority. "Given our financial situation, I'm not sure we'd
waive anything we're not collecting."
SENATOR ELTON asked if the commissioner could waive or reduce or
change in any manner a property tax levied by a municipality now.
MR. PERSILY replied, "No. The only involvement is up to the 20
mil limit, they get first crack; we get what's left. The state
assesses the property on the TAPS right now."
CHAIRMAN TORGERSON noted that SB 360 increases the amount of
previous legislation from $17 to $18 billion. He explained:
I did that mainly to bring recognition to the state
financing the expansion of the project. Assuming the
explorers do not have a vested interest in the pipe
itself, we'd want the line expanded. In testimony in
Washington and other places through phone calls, it was
pragmatic for government to tell private industry to
spend money for an expansion, even though it would have
to meet all the economic hurdles that would go with any
pipeline. I thought if the Railroad had the authority
to build the line, expansion should be part of it.
That's the main reason for the increase in money.
4:13 p.m.
MR. NEIL SLOTNICK, Deputy Commissioner, Department of Revenue,
said he would speak to the Railroad tax-exempt financing. He
remarked:
As you know, of course, tax-exempt financing is always
going to be cheaper than taxable financing. The
question is: Why the Railroad? As you know, tax-exempt
financing is not generally available for what is called
private activity, a private entity that is building and
benefiting from the project. That's the general rule.
Now, there are some exceptions to that rule. For
example, there's the private activity cap where the
state can, in fact, allow the sale of up to $225
million of tax-exempt bonds each year for private
activity. But that private activity cap is spoken for
generally by AHFC with its housing program, by the
Alaska Student Loan Corporation, which benefits private
individuals and AIDEA, also, sometimes claims some of
that cap as well as municipalities, which have a claim
to 25% of it. There are other exceptions to the rule
that tax-exempt bonds can't be used for private
activity. There's a Dobbs-Ward exception, there's a
pollution control exception, but those are very limited
and obviously couldn't be used for a big project such
as this one.
The other exception that's out there is that if you
have special congressional authorization to issue tax-
exempt bonds, then you can, in fact, do that, but those
are rare, but the Railroad has one and the exemption
granted to the Railroad is granted in very broad
language. It just says that the obligations of the
Railroad, our tax-exempt bonds, would not be treated as
private activity bonds or actually the language at the
time that the Railroad Transfer Act was passed was
industrial development bonds. I've included a copy of
the Railroad Transfer Act and highlighted the relevant
language there in your packet.
If the Railroad were to do such a financing, what would
it look like? Who would own the line and what would the
terms be? Well, the model that we actually are
following most closely here and in the presentation
that's in the packet, if you'll turn to page 4, you'll
see the Marine Terminal tax-exempt revenue bond
offering sheets and that's the model that we are
following here. The Valdez Marine Terminal was financed
by tax-exempt bonds issued by the City of Valdez, but
if you look closely at these offering sheets on page 4,
you'll notice that the credit, the responsible party
for paying off those bonds, is not the City of Valdez.
The responsible party is, in fact, the producers.
In this case, I've got an Exxon offering and an ARCO
offering, again, for tax-exempt bonds sold by the City
of Valdez as a conduit. The credit that stands behind
the bonds is that of the company and that's the model
that we envision here. In addition, the owner of the
Marine Terminal is the companies, themselves. It's not
the City of Valdez. This was done under an exception to
the private activity rules, because this was considered
a wharf project and under the terms of the tax laws as
written then, Valdez did not have to retain ownership
of the project. If it was used under that exception
today, Valdez would have to retain ownership.
But looking at the Railroad statute, that's again a
very broad exception, that takes you back to a time
before even the 1977 tax laws when ownership by the
municipal entity that was funding the industrial
development was not required. So, the model that we
look at here is that the credit behind the bonds is not
going to be the Railroad. It's going to be the
companies and that would probably be done through a
shipper-pay contract. So, the producers are going to be
the ultimate responsible party for the bonds. An
ownership would remain with the developer of the
project and that owner then would be able to take
depreciation on the project. If you have a municipal or
state or public corporation owner, then there's no
advantage of depreciation to private enterprise. Here,
with this exception, I think we will be able to avoid
that dilemma and allow private parties to own the line
even though it's being financed by tax-exempt bonds
issued by the Railroad.
What would the financing look like in terms of how much
debt? We're told by our financial advisors that the
market's going to require some equity participation by
the producers or by the entity [indisc.]. You can't do
a project like this with 100% debt, because the
market's not going to want you to take all of the risk.
The market will want to see somebody else ponying up
some money that is at risk for the project. And so a
good rule of thumb is about 70% debt and 30% equity.
We've got some information in this packet about the
Alliance Pipeline, which was recently constructed from
Calgary to mid-North America for transportation of
Natural Gas.
The next question is, if the Railroad does this, how
much money would this tax-exempt financing save the
producers or the entity that builds the line. That's a
difficult question to answer. We have to make a lot of
assumptions to come up with an answer. So, what we did
is we built some models and the one that's in the
packet here assumes first of all a project finance
basis so we don't have to figure out the credit value
of each individual company that's standing behind the
bonds. We just take a blend of credit, call it a
project financed project, figure about four years for
construction and about $17 billion total costs,
interest rate, if it was a taxable project of about
8.5% interest rate. For tax-exempt bonds it would be
about 20% less or about 6.5%.
We've got various other assumptions built into our
models about how much capitalized interest and so on.
When you run those models and then take a present value
figure for how much the savings are, it comes out in
today's dollars of about $1 billion in savings - by
using tax-exempt financing.
Now, there's lots of different ways to run these models
- lots of different assumptions that you can make, some
of which are going to show more savings and some of
which would show a little less, but we've been told by
the producers, and others as well, that yes, they have
checked it and they find that number is probably a
pretty good ballpark number - again, maybe a little
conservative depending on what kind of assumptions that
you make when you run these models.
That's a pretty quick run through of the kind of work
that we've done so far on this project, but that's a
start. If there's any questions, I'd be happy to try
and take those.
CHAIRMAN TORGERSON asked his opinion on the default provision and
questioned, "If something happens to the three producers, who's
on the hook next?"
MR. SLOTNICK replied:
The bondholders - the investors. It would be very clear
in the offering statement that the Railroad is not
pledging its full faith and credit and the State of
Alaska is not pledging its full faith and credit or in
any other way guaranteeing or backing these bonds….On
page 4, again, you need a magnifying glass to see it,
but it says, 'These bonds will not constitute general
obligation of a city or charge against a general credit
or taxing power of the city or the State of Alaska.
Payment of the principal of premium, if any, and
interest on the bonds is guaranteed by Exxon
Corporation.' We would have that type of language
throughout the bond offering in bold letters.
MR. PATRICK GAMBLE, President, Alaska Railroad Corporation
(ARRC), said he would testify in general support of the
railroad provisions in SB 360. He referred the committee to
page 12, line 9, and said he would focus on section (d):
(d) The proceeds of the bonds described in this section
shall be used only for an Alaska North Slope natural
gas project and related facilities that are owned by
one or more entities other than the corporation (the
Alaska Railroad).
He continued:
We believe that precludes the opportunity to link what
we see as probably significant railroad requirements to
some sort of an opportunity to collect a fee in order
to fund those requirements. If you get to the
engineering side of the project, for example, and start
looking at the additions to our current level of
business on the railroad, one of the assumptions is
that we are going to tell our current customers that we
can no longer service them because we have a new
project to build the pipeline. In order to robust the
rail line, we've got to look at the opportunity to
continue what we're currently doing and add this
additional business on. That means we've got to look at
things like sightings, we've got to look at places for
additional double track on the rail line. As you know,
it's a single rail line through most of it. We're going
to have to look at the yards, especially in Fairbanks,
where there's going to be an enormous amount of pipe
trans shipped. And, so there are going to be physical
requirements. We currently, for example, have a 90 lb.
rail in our yards to a large extent, which probably is
not sufficient. In fact, I can almost assure you that
it's not sufficient to take the gross weights that
we're going to apply across the line in addition to
what we're already doing. We're in the process of
changing out that lighter rail for heavier rail. We're
in the process of building additional sightings
already. It's in our five-year plan.
We're in the process of looking at our bridge
structures. Those bridges were built many, many years
ago. To make sure they can handle the current loads for
years to come and, of course, we would have to reassess
those in light of the additional tonnage that we would
see by more trains added on to the line. As you can
see, I'm building a case for the fact that we need to
robust this rail line in order to take this project on.
Now, there are some who have said this project and I
have said this is the biggest construction project
since the Great Wall of China. Obviously, we don't
exactly know how big it is, yet, but we do know there
is going to be certain physical requirements that the
railroad is going to have to meet that are
considerable.
On the other side of the fence, we have heard it said
that this is the largest private bond sale in U.S.
history and, whether that's the case or not either, it
simply goes to show that it's a very large financial
deal. This also is going to have a considerable impact
on the Railroad. This is not a part time job for the
current management structure or for the employees of
the Railroad. Given the life of this project where the
bond refinancing could go on for 35 - 50 years, we're
going to have to make some structural changes in the
Railroad to accommodate our responsibilities. I
emphasize that word because there's responsibility,
there's authority and accountability that the Railroad
is going to have to have financially for some time to
come.
What we see when we get back to (d) and with the idea
that there be an amendment somewhere in here with the
opportunity to link some sort of fee for the services
rendered on the financial side with the requirement to
fund that robustness that I spoke of before that we see
on the operational side of the railroad and also
possibly for the additional operating expenses that
would be incurred as we support this project after it
matures as a construction project and becomes a
sustained pipeline project with all the attendant
services that we would normally put forth to do that.
CHAIRMAN TORGERSON said he agreed with that and would craft an
amendment to that affect.
SENATOR ELTON asked how ARRC financed the infrastructure that may
have been needed to support construction of TAPS.
TAPE 02-18, SIDE B
MR. GAMBLE replied there was one, but it was long ago. He said he
didn't know if they scaled the projects side-by-side - this one
is enormous compared to TAPS - which portion of that ARRC would
have to support directly. He said it would add considerably to
ARRC's activities. One issue is space and the ability to take as
much product and be able to move it and transship it; and the
other is the wear and tear on the rail line, bridges, etc. as a
direct function of gross ton-miles across the rail line, itself.
He could better answer the question when engineers converted that
to trains and load. He stated, "In the abstract it's very fair to
say that the current level of activity that we share on the
Alaska Railroad has already got us looking at some of these
things."
MR. GAMBLE explained that over the last three years, especially,
they have been playing catch-up for when there wasn't a lot of
money put into the line. Adding this on to the catch-up game ARRC
is playing will be a considerable task. He elaborated:
What we're suggesting here is then that before we start
hauling this tonnage, we have a number of programs that
I think it would [be] safe conceptually to say if we
accelerated what we already have on the books, we're
already doing what I'm asking for. We're not talking
about going out and building a whole lot of new things;
we're talking about accelerating the robusting that
we're already doing on the Railroad right now. For
example, the bridges, we have probably just under 300
bridges and most of those were built with wood ties and
wooden supports, they were built 45 - 50 years ago and
we're out assessing our entire bridge program. We're
finding a lot of work that needs to be done in that
program. If I go back to my engineers and add on what I
estimate to be the additional tonnage that's going to
have to go across those bridges for the period of time
we're talking about, we're going to accelerate the
deterioration of those bridges considerably and so on.
SENATOR ELTON added that there would be infrastructure impacts on
a lot of our transportation facilities and the railroad is the
only one that is going to be able to recoup some of those impacts
through charge backs to the people who are building a pipeline.
He said he was very interested in knowing about impacts during
the construction of TAPS and how they were paid for.
CHAIRMAN TORGERSON said he agreed with part of what he said, but
right now the bill doesn't even let them recoup the fees it will
cost them to put out the bonds. He envisions this to be a
negotiation between ARRC, the Department of Revenue and the oil
companies under ship and pay contracts.
SENATOR ELTON said he didn't have any problem with the
administrative impacts on the railroad.
MR. GAMBLE said they would like to align the fees with legitimate
requirements - "No more and no less."
CHAIRMAN TORGERSON responded:
Again, I think that would probably be a negotiation
aspect between the railroad and the producers since
they are paying the bill on both ends, not only
transportation of the product, but also for
administrative fees that the railroad would be asking
for.
MS. NAN THOMPSON, Chairwoman, Regulatory Commission of Alaska
(RCA), supported SB 360, which provides a clear statement of the
state's goals and interests that should help advance this
project. SB 360 also addresses her concerns about the need to
insure appropriate access to instate users and provisions for
expansion to encourage development.
She said this bill gives the RCA two important responsibilities.
First, the RCA is part of the 90-day certification process in
Section 240. The RCA is supposed to make sure the applicant
adequately considers instate demand and submits the plan that
maximizes opportunities for access to the royalty gas after
holding a hearing to determine if the applicant has adequately
studied the supply and maximized the opportunity for initial and
expansion capacity. She said this process is good and will allow
the issues to be fully explored and aired and will allow the RCA
to develop a good record for decisions on certification.
The second responsibility relates to the expansion issue. The Act
provides for a lease provision that would require the RCA to
apply for specific criteria in evaluating applications from any
entity that wanted to ship gas on the pipeline to determine if
the pipeline expansion was in the best interests of the state.
She agreed with Ms. Robson's comment about specific language
issues in the current draft and said Ms. Robson's suggestions
would make it consistent with pending federal legislation that
she would also support.
MS. THOMPSON told committee members that the pending federal
legislation contains provisions for expansion and this process
would compliment that process rather than supplant it. It would
allow the state to develop a record on the same issues that FERC
would be interested in. It's a good way for the state's interest
to be fully evaluated and to submit the results of the process to
FERC.
SENATOR ELTON asked, after construction begins in a 10-year
period, if in the eighth year the RCA finds that the applicant
did not maximize opportunities for access, they would be able to
do something without waiting for a study that comes in on the
tenth year.
MS. THOMPSON replied that the Act requires RCA review of a plan
and if they were acting consistently with the plan, they would
have the opportunity to do something about it. The Act requires a
regular update.
MR. ALAN SHARP, Director, Northern Business Development for
Encana Marketing USA, Inc., supported SB 360. He explained that
Encana is a brand new corporation, a flagship world-class oil and
gas company launched on April 8, 2002. It was formed from two
great Canadian companies, Alberta Energy Company and Pan Canadian
Petroleum Corporation. Some of its growth platforms include
Alaska, the MacKenzie Delta, western Canada, the US Rockies, the
Gulf of Mexico, off-shore eastern Canada, the North Sea and
Ecuador.
He highlighted a few points saying through this merger Encana is
now North America's largest independent oil and gas company and
North America's largest natural gas explorer and producer and
largest gas storage operator. Encana's forecast for 2002
production after royalty for natural gas is 2.4 BCF/D. He said
Encana believes this bill is necessary for the following reasons:
The state is in control of what its gas industry will
look like and it has at least 50 years ahead of it,
based on North Slope potential of 100 BCF. It could be
upwards of 75 years. This bill creates competition by
insuring third party access to the pipeline, and which
also will be drawing in exploration dollars starting
today. This bill also reduces through competition the
state's reliance on the three producers as kind of the
main producers at this point in time as about 75% of
the state's income.
The second point that we see as a result of the
potential producer pipeline owner shipper conflict of
interest for the pipeline and its expansions could be
designed to hinder third party access. This bill
insures that the pipeline will be designed to meet both
the producer and future Alaska gas needs.
The third point is the way they would go about insuring
this pipeline design is by gathering information that
is required to implement state gas policy and
regulation. This goes beyond just having the producers
provide their volumes and their design in the pipeline.
It will actually establish hydro-carbon conservation
and competition rules as well as going into regulating
access, expansion and control of upstream facilities
that go into the pipeline as well as the pipeline,
itself.
The fourth point that we had was the delay in the
legislative approval for the royalty-in-kind gas sale.
The royalty-in-kind gas sale requires legislative
approval so that cannot be obtained until January 2003
or until a special session is called. Basically, where
we're coming from in this is, as an explorer, we can
only participate in an open season when we have proven
gas reserves and the earliest we see that would be 2005
or through a royalty-in-kind sale. So we view this bill
as very important.
He showed a slide of proven gas reserves being held by BP, Exxon
and Phillips. Of the 30 TCF that's proven right now, there's
about 100 TCF of potential gas reserves in the North Slope and
Encana believes that around 26 TCF is in Foothills, based on a
USGS report. He continued his explanation of the slide. Encana
believes the producers are waiting for them to lead the way,
because it will significantly lower their costs and risks. He
concluded, "So, you can see the magnitude of our land relative to
the Foothills area and why we're interested in the bill for
access to the pipeline."
He said that only a small area on the North Slope has been
explored and mainly for oil. Without access for explorers, the
pipeline would be full for 20 years. There would, therefore, be
minimal exploration and land sales in that area.
MR. SHARP explained:
An open season from our perspective is a binding
obligation for pipeline capacity. Prior to an
application to actually build that pipeline, it's
usually held significantly before the FERC application
to build the pipeline. The open season is used to
determine the design and the size of the pipeline. The
main issue that we have is if you do not participate in
the open season, then the pipeline will be designed
without your interests and I'd like to point out that
would be from both a state and an explorer point of
view. Especially, if you have a very early open season,
it can actually create a barrier of entry to the
pipeline. So, through the bill, if there are rules on
access and expansion, it kind of eliminates that issue.
Right now, FERC does not control or regulate an open
season. That may change through the federal energy
bill, but that has not been approved yet, and the
details of how that would be worked out are still
outstanding.
There are really three critical important aspects that
we see to the bill and to the pipeline. [Slide 6]
That's the initial design, expansion and access to the
pipeline, itself.
The first item would be initial design, which would
determine the fate of future gas exploration and
competition in Alaska. Through the initial design,
you're really determining what the tolls will be, the
initial volumes that flow as well as for the expansion
in the future. Depending on how it's designed, you have
a toll that could be roll in versus incremental for the
expansion. That could be quite important relative to
initial shipper versus a future shipper on competition.
Initial design also determines the expansion capacity
increment sizes. Is it going to be a smaller in number
of series of expansions or is it going to be in one
large expansion?
The initial design also determines how long an
expansion will take to build, because you could
actually prebuild certain things into the pipeline so
it's easy to expand into future, because you've already
put down flanges on the pipeline or areas for
compressors to go in on mid-distances.
The second item that it talked about would be expansion
rules. They would determine who would be able to
contract for actual capacity on the pipeline. From the
explorer's perspective, we require reasonable expansion
capacity increments - by that I mean in the 300 million
CF/D range, not one large expansion of 1 BCF/D. That's
something we had heard from the producer group. The
explorers would also like to see reasonable assurance
on a timely expansion such as, if you request
expansion, it would actually happen in a certain time
frame.
The last item under expansion is looking at the tolls
themselves to insure that they're competitive and
reasonable relative to the initial shippers. In that
respect, it's important in the initial design to have a
consideration for prebuild of some type.
The last item would be access rules. It would determine
where and whose gas can actually enter and leave the
pipeline and to give you an example of that, I think a
key component for explorers is unbundling of the
pipeline tolls relative to other producers' facilities
on the North Slope around Prudhoe Bay and Pt. Thompson.
As explorers down in the Foothills, it's likely our gas
will not require the same type of facilities as the gas
up North as well as if we do need facilities we'd put
our own in the Foothills area, things like
transferability of firm service at receipt points and
delivery points. That's important not only for
explorers to get on and off the system, but also for
instate gas use in order to grow the Alaskan gas
consumption. The last one would be the rules to support
and encourage new gas entering the pipeline. That kind
of highlights both access and expansion as to how you
get on.
To sum all this up for SB 360, we believe it provides
the framework to regulate these critical areas. It
establishes competition and an equal playing field for
explorers. What's critical for us is that detail
regarding access and expansion rules actually evolve so
we have the framework here. It's important for us as to
work out the details of how that would actually come
about.
4:45 p.m.
MR. MARK HANLEY, Public Affairs Manager, Anadarko Petroleum
Alaska, said they used to be the largest independent oil company
in Alaska, but now they are number two. He noted that the two
largest independent exploration companies in the world are up
here interested in Alaska where there is a lot of gas potential.
He said the biggest risk would be getting the gas to market.
Having fair access at a reasonable price to any transportation
project is crucial. He pointed out, "It's almost impossible for
companies to invest the dollars ahead of time if you don't know
when you find the gas, you'll be able to actually get that into a
project." He said Anadarko is supportive of the access provisions
that will encourage exploration companies to continue exploration
in Alaska into the future.
MR. ROBBIE SCHILHAB, Alaska Gas Developments Manager, Exxon Mobil
Production Company, said:
Alaska's North Slope gas is a very important resource
for Exxon Mobil. Exxon Mobil holds over one-third of
the gas. It is the largest gas interest holder on the
North Slope. We've been working for over 30 years to
commercialize this gas since discovery in 1968,
spending more than $150 million on various Alaska gas
projects. As you would expect, a pipeline project will
always be a marginal project economically due to the
distance to markets and competition in North America
with other fuel sources. As a result, a pipeline
project must be developed at the lowest possible cost
to effectively compete with the other available energy
sources. Exxon Mobil appreciates the interest of the
Alaska Legislature to consider what actions they could
take to help a potential pipeline project, especially
in the areas of expedited permitting process and
expedited judicial review. However, we cannot support
SB 360.
I'd like to address a few specifics about the proposed
legislation. First, any mandates such as a route, or
for that matter, labor or other mandates, will only
serve to increase the cost of a project and further
hamper the prospects of a project being economic. Also,
Exxon Mobil does not seek nor do we support any
government subsidies for a project. If a project is
determined to be economic in a normal market
environment, no subsidy is necessary. If a project is
not economic, our preference is to try to improve it
through our own actions or wait until market conditions
can support the project. Rather than subsidies, we have
made it clear that it would be very important to
ultimately establish a predictable and stable framework
in terms of certainty in the state government fiscal
system. The potential for fiscal change creates risk
that jeopardizes the economics of a long payout,
capital-intensive project.
Finally, we believe it is inappropriate to legislate
any added requirements for expansion or access for
royalty in kind gas or new discoveries as these topics
are already addressed as part of the federal Natural
Gas Act and the Federal Energy Regulatory Commission
rules and regulations. Any new requirements will
increase the risk to project developers and will be an
added burden on a project that is currently not
commercially viable. Again, while we appreciate the
intent of the legislature and the opportunity to
comment on this proposed bill, we cannot support this
legislation, nor do we believe it is necessary for the
legislature to pass any legislation on this subject
during the current session. I appreciate the
opportunity to speak on this bill.
CHAIRMAN TORGERSON said they have differing opinions on the
federal legislation, but as far as the royalty gas is concerned,
it says, "you 'may' ship our royalty gas and that just is not
going to cut it." He thanked him for his testimony.
MR. KEN KONRAD, Vice President, BP Exploration Alaska, said BP
didn't participate in development of the bill and has only had a
few days to review it. He said BP hasn't completed a full
analysis on all the potential impacts. He added:
This bill seems to address a number of areas pertaining
to a potential Alaska gas pipeline project. These
include potential royalty impacts and tax relief,
potential use of railroad bonds for lower cost project
financing and a modified regulatory framework. I'd like
to touch on each of these areas individually.
Railroad Bonds
The proposed bill would authorize the Alaska Railroad
Corporation to issue bonds that could potentially
provide a project with lower cost federally tax exempt
financing. BP has previously testified in the House
that we are generally supportive of such an effort [HB
423]. If achieved, tax exempt financing could help
lower overall project costs. Ultimately, however, it is
likely that bond investors will require further
assurance from the federal government that the bonds
would indeed be tax exempt before actually investing in
such bonds.
It's our understanding that HB 423 is progressing
through the legislative process. If this bill were
passed by the legislature, it would achieve the goals
outlined in SB 360.
Tax and Royalty Relief
The proposed bill addresses potential mechanisms to
provide tax and royalty relief. BP has not requested
specific tax or royalty relief for an ANS gas project.
However, we have consistently said that establishing
clear, simple and predictable rules around the state's
royalty and tax regimes is vital to progressing a
project. SB 360 does not provide a mechanism for
establishing such clarity and predictability.
Furthermore, we feel if it is the legislature's intent
to provide tax and royalty relief, it is unlikely the
current language in the bill will in practice lead to
such relief.
BP, with our partner, outlined early last summer a
notional process whereby industry investors and state
officials would, over a several month period, develop a
mutually framework. Ideally that process would have
been completed by yearend for consideration by this
legislature. Unfortunately, that is not the case, but
we are where we are.
BP stands ready to enter into meaningful discussion
with the state at any time to work towards creating a
viable fiscal framework. We understand it will take
some time to thoughtfully address all the details, but
we can't finish until we start. Hopefully we can begin
this process very soon so a completed product is
available in advance of the next legislative session.
We have recently become aware that a new proposal is
under consideration elsewhere in the legislature to
reactivate HB 393, the old Stranded Gas Act that was
first signed into law in 1998. This would be a positive
and constructive first step towards creating a viable
fiscal framework.
Regulatory Modifications
SB 360 includes provisions that suggest an effort to
enable an expedited state regulatory process. A clear
and efficient regulatory process is indeed vital to a
project of this magnitude. However, the bill as
currently crafted would actually add regulatory
complexity and hence, risk.
The bill introduces an additional layer of stipulations
from state regulators in areas that are either not
necessary or are currently addressed in federal law
under the jurisdiction of the FERC. Creating
overlapping jurisdictions and adding yet more
regulatory stipulations is simply a clear step in the
wrong direction.
Early last summer BP and our partners proposed enabling
federal regulatory legislation. The events of September
11 and other factors caused some delay. However, at
this point in time, significant progress has been made.
After many months of thoughtful and constructive work,
it now appears that there is a reasonably good chance
that this vital legislation may progress to law. To re-
clutter the regulatory clarity created by the federal
legislation after all this effort cannot be in the best
interest of the state or industry.
In the event federal legislation does pass, BP would be
very supportive of working with the state in a
deliberate and constructive manner to develop a clear
and predictable state regulatory process that is
consistent with and complementary to the federal
legislation.
To summarize, BP does not support SB 360 as currently
constructed. We have previously endorsed state efforts
towards authorizing railroad bonding and believe that
could be adequately addressed through HB 423 or the
Senate version thereof.
It is absolutely vital to progress clear, simple and
predictable fiscal framework in Alaska. However SB 360
does not provide for such a framework. Other proposals
modeled after the Stranded Gas Act that are being
contemplated by others in this legislature would
provide a better mechanism for creating a viable fiscal
framework.
The regulatory provisions of SB 360 creates overlapping
jurisdiction with the FERC and creates needless and
harmful regulatory complexity. If pending federal
legislation becomes law, carefully considered state
regulatory legislation can be developed that is
consistent and complementary to the federal
legislation.
I fully appreciate the enormously strong desire form t
this committee to see an ANS gas project become a
reality. It is certainly a desire shared by BP.
Commercialization of the world-class gas resource on
the North Slope would be one of the most significant
and exciting projects ever undertaken by our company.
My personal commitment to trying to make ANS gas a
reality is unwavering. However, each step we take
towards building a viable government framework needs to
be the right steps. I strongly urge this committee to
take the right steps. Thanks for the opportunity to
address the committee and I would be happy to answer
any questions.
CHAIRMAN TORGERSON thanked him for his testimony.
MR. JOE MARUSHACK, Vice President, ANS Gas Commercialization,
Phillips Alaska, said:
My first responsibility is the development of Phillips
ANS gas resources and Phillips is committed to
achieving our goals in a timely and economic fashion.
Thank you for allowing me to testify regarding our
views on SB 360.
As you know, we have been focusing this year on those
areas that we believe are most likely to result in an
economically viable gas pipeline project to the Lower
48. We have completed our joint analysis of the work
the producers initiated last year and will be setting
up a time to brief you on the results of that work. For
the past several months however, most of Phillips' gas
emphasis has been directed at the federal level to
achieve congressional legislative changes to advance
the project. These include:
1. Federal legislation that creates permitting
certainty. I believe you are well aware of the current
federal legislation in the Senate energy bill.
2. A federal tax mechanism that would help mitigate the
unacceptable market risk of a project of this
magnitude. I understand you are aware of current drafts
of this mechanism that provides downside mitigation but
also provides for repayment of any credit if used and
that is currently assessed by the U.S. Government as
having a zero cost. This piece of legislation is in
Phillips' view a most critical element in moving our
project forward. It shares the benefits the Lower 48
consumer will see from ANS gas coming to market while
addressing the risk inherent is such a large and costly
project.
Given achievement of the federal legislation (at this
point it is not a certainty), it is important to the
economic viability of the project to progress fiscal
matters at the state level as Phillips set forth in our
letter of March 15, 2002.
Fiscal matters include fiscal certainty and what we
really mean is that we need to know with a fair degree
of specificity how our taxes and royalties will be
calculated and administered. We would also like to
address potential opportunities to gain assurance that
those taxes and royalties won't change once we've made
our investment. We believe that strategic participation
by the state in mechanisms to improve the economic
viability of a project [is] important. We are generally
encouraged by the concept of the railroad bond
financing proposal and agree that the state should
consider tax modifications that may improve project
viability.
SB 360 is, in essence, a process bill. It prescribes no
particular tax or royalty relief for a project, but
outlines a process by which a project sponsor could
initiate discussions to progress a viable fiscal
system. What we would like to point out is that a few
years ago the legislature engaged in quite a lengthy
debate and put in place a similar process.
Existing Alaska statutes in Chapter 82 of Title 43
already outline a process by which fiscal clarity and
certainty can be achieved. We encourage the legislature
to consider whether the existing framework could be
utilized and upgraded to include the improvements to
the state's permitting process and railroad bonding
that are outlined in SB 360.
This existing statutory framework has certain
advantages because it includes a comprehensive process
that could provide for some measure of fiscal
certainty. It also allows for confidentiality at
appropriate points in the discussions while at the same
time provides a more structured public process
including measures that involve municipalities more
directly.
While SB 360 currently before you has some positive
aspects, it has several problematic areas that may not
progress the project, would add uncertainty and
ultimately delays. We must point out that some of the
provisions of SB 360 will require significant
discussion to fully consider the ramifications. We
believe that the state's desire to sell its royalty gas
by either royalty-in-value or royalty-in-kind is an
issue that directly affects the project development
because viability of the project will require long term
transportation and gas sales commitments. We
wholeheartedly support access to gas within the state
and access to the pipeline for development. Though it
must be structured in such away so as to not impair the
project's viability. Given the cost of this project,
the inherent risk, the relatively difficult current
economics and combined with the physical and mechanical
issues related to this very unique pipeline, these are
extremely complicated issues and must be addressed over
a period of time with state officials so that mutually
satisfactory solutions can be reached that both enable
a pipeline project and meet state needs. We urge the
legislature not to implement direct legislative
requirements that negatively impact the project.
Since SB 360 is fundamentally a process bill, we would
encourage you to consider working within the existing
framework and processes already in statute to help us
achieve the kind of fiscal and permitting regime that
can help move the project forward. I'll be happy to try
to answer any questions.
CHAIRMAN TORGERSON said there were no questions and thanked him
for his testimony.
5:07 p.m.
MR. CURT MOFFATT, Van Ness Feldman, said he was testifying on
behalf of the Alaska Northwest Natural Gas Transportation
Company, and that they hold a certificate under the ANNGTA to
construct the Alaska Highway project in Alaska. Foothills is one
of the partners and holds similar certificates under the Northern
Pipeline Act in Canada. He said they currently have a federal
right-of-way for a project in Alaska and hold similar authority
in the Yukon, Alberta and British Columbia. In 1981 they filed an
application with the State of Alaska for a right-of-way lease
across state land in Alaska and that application is currently
under review by the commissioner of DNR. He continued:
The ANNGTC decided in 1983 to maintain the lease
application in good standing so it could be
expeditiously obtained once gas markets improved and
the project was remobilized. In this regard we
completed significant work necessary to progress the
right-of-way application including studies of the Yukon
River bridge issues, completing a circle of a study of
pipeline construction on the Dalton Highway and
advancing negotiation and agreements on highway use,
maintenance or repairs. We continue to refine project
cost estimating, we have continued reconnaissance of
our right-of-way route. We have expended significant
dollars on frost heave engineering, technical work and
$30 million developing a base route maps, drawings and
surveys, more that $77 million on the development of
geotechnical data and more than $19 million on
environmental related data. They have also maintained
their Clean Water Act Section 404 permits and have
renewed them twice.
In March of 2001, Foothills Pipe Lines Alaska, on
behalf of the ANNGTC, notified the State Pipeline
Coordinator that it would like the state to continue
processing its right-of-way application. The Department
of Natural Resource's Gas Pipeline Office then issued
public notice of its intent to do so. As part of that
process in early 2001, we identified current existing
law relating to the definition of significant or
substantial change in the right-of-way application.
There was legislation enacted to clarify when changes
to right-of-way application would actually constitute a
new application process.
Building upon that cooperation, we have accelerated
both our efforts and expenditures over the past year
toward finalizing the right-of-way lease. In that
regard, we have entered into a Memorandum of
Understanding to provide [indisc.] in funding to the
state Pipeline Office. We have expended in excess of $1
million 'til June 2001. We are now averaging
approximately $200,000 per month. In this regard we
have hired a number of Alaskan engineering and
consulting firms as well as local Alaska counsel and
advisors. Those companies include Michael Baker, Jr.,
Inc., Oasis Environmental and Land Field Services.
In discussions with state officials earlier this year
we included representatives from the DNR and DGC. We
identified two additional detailed statutory changes
that upon which we would need clarification to clarify
the authority of the commissioner of DNR and DGC to
phase various decisions required under the Right-Of-Way
Leasing Act because of the Coastal Zone Management
Program. To this end we prepared suggested amendments
for the legislature's consideration. We believe that
they are necessary to add clarity and predictability
and that they are in the state's best interest as well.
We are encouraged that both of these issues are
addressed in legislation passed by the Senate and
currently pending in the House, as well as in this
proposed legislation, SB 360.
We are concerned, however, that the resolution of these
issues proposed in SB 360 is conditioned in such a
manner as to create additional uncertainty and risks
for our project, which could delay rather than advance
the issuance of our right-of-way lease at the earliest
practical date.
As the chairman may recall from the deliberations of
the interim joint committee last fall and discussions
we had with the Governor's Gas Council, you might want
to consider additional legislation to provide clear and
investor friendly administrative review with respect to
the multitude of state decisions that will need to be
made by numerous department and agencies, including,
but not limited to, the DNR review and grant of the
right-of-way lease across state lands. We suggested
that the state look to the statutory language in ANGTA
regarding expedition and priority of administrative
review, limitation on conditioning authority and
limitation on judicial review. Under ANGTA, these
statutory provisions have worked well. The federal
agencies have particularly in the late 1970's and
1980's, but also recently, respected these specific
congressional directions to provide expedition,
coordination and regulatory and judicial certainty to
permit a project of this size and scope to proceed. The
risks of regulatory delay and lack of expeditious
decision-making have consistently been recognized as
major risks to investment in a project of this scope.
Again, we are pleased that SB 360 recognizes the
benefits such legislative action can have on creating a
favorable climate in which the private sector will
consider making large capital and human investment.
All of us are in this together - the owners of the
resources, the state in its multiple capacities,
private pipeline companies undertaking to invest in,
build and operate the transportation system and the
North American energy markets. ANGTA's provision of a
more efficient and predictable regulatory and judicial
review has proved to be of great benefit to the
project. Similar provisions as found in SB 360 would in
our view be of major and additional benefit to the
development and completion of the transportation
system.
We understand the legislature's desire to assure that
any fiscal changes that may be requested are necessary
and supported by the record. We also understand the
state's desire to promote and maximize the employment
of Alaskans, to assure access to a North Slope pipeline
to transport the state's royalty gas and to promote
further exploration, development and in state use of
the state's resources. These are goals we share.
However, we do not believe it is necessary or
appropriate particularly with respect to the ANNGTC to
condition both the non-fiscal benefits of access to an
expedited permit process and a clarification of the
authority to phase administrative decisions as proposed
under SB 360. The ANNGTC urges the legislature not to
further complicate the timely consideration of the
right-of-way lease application we have pending before
and which is under active consideration by the
Department of Natural Resources. Indeed, ANNGTC
believes that the goals and policies identified in the
bill are to a significant degree already addressed by
existing federal law, namely ANGTA or authorizations or
other decisions issued under ANGTA.
TAPE 02-19, SIDE A
MR. MOFFATT continued:
To the extent these goals and policies are not already
addressed, ANNGTC believes that they can be addressed
without further complicating the right-of-way lease
application as discussed here.
Generally, as pipeline companies, we benefit from
system expansions and from the discovery and
development of new resources to grow our business and
to prolong the life of the infrastructure we build.
More importantly with respect to access to the system
for royalty gas or new discoveries, the ANGTS is
obligate under existing federal law not to discriminate
against any potential shipper. Subsection 13(a) of
ANGTA provides:
'There shall be included in the terms of an
certificate, permit right-of-way, lease or other
authorization issued or granted pursuant to the
directions contained in section 719 of this title, a
provision that no person seeking to transport natural
gas in the Alaska natural gas transportation system
shall be prevented for doing so or be discriminated
against in the terms and conditions of service on the
basis of degree of ownership or lack thereof of the
Alaska natural gas transportation system.'
With respect to the shipment of Alaska gas for instate
use, subsection 13(b) of ANGTA provides specifically:
'The state of Alaska is authorized to ship its royalty
gas on the approved transportation system for use
within Alaska and to the extent its contracts for the
sale of royalty gas provide to withdraw such gas from
the interstate market of use within Alaska; the Federal
Power Commission [FERC] shall issue all authorizations
necessary to effectuate such shipment and withdrawal
subject to review by the Commission only of the
justness and reasonableness of the rate charged for
such transportation.'
Further, with respect to the goals stated in SB 360,
the President's decision and report to Congress on the
ANGTS states clearly that,'Prudhoe Bay gas, including
the State of Alaska's royalty gas, will be made
available to local Alaskan communities along the route
of the Alcan Pipeline System.' It further states:
'Installation of additional pipeline facilities
connecting with the Alcan system could provide natural
gas to other areas of the state particularly the Cook
Inlet region and Southeaster Alaska and thus supply the
energy base required for long-term economic
development. The Alcan system also will offer a readily
accessible transportation service for a number of
potential gas reserves located in interior Alaska, Cook
Inlet and the Gulf of Alaska.'
This is the report on which the Congress authorized the
present recommendation to select the Alcan project over
other competing proposals. With respect to the bill's
labor and workforce development requirements, we
recognize the state's long history of encouraging local
hire to the extent permitted under the U.S. and Alaska
Constitutions. We are aware that in the past the
legislature has imposed certain best efforts
requirement similar to those contained in SB 360 as a
condition to a lease, not as a precondition to
processing the lease.
The ANNGTC recognizes the state's interest in so
conditioning its leases. Moreover, as representatives
of the ANNGTC have stated before, to the extent
available we have found it generally preferable to hire
competent and experienced local contractors,
consultants and employees. It is as a general matter,
usually more efficient and economic.
In recognition of our unique status under ANGTA and our
consistent efforts to advance the Alaska Highway
Pipeline Project for the benefit of all Alaskans, we
ask you to consider an amendment deeming the already
authorized ANGTS project to be subject to existing
federal law specific to the Alaska project to be
consistent with the requirements precedent to receiving
the benefits of expedited agency review and action,
limited judicial review and phased decision-making
contemplated under SB 360. We believe that doing so
will reduce project risk and regulatory uncertainty.
Alternatively, we ask that you work with us, and Mr.
Chairman, you acknowledged earlier in the opening today
that you are considering certain transition rules that
might be applicable to our pending lease application.
Thank you. I'd be glad to answer any questions.
CHAIRMAN TORGERSON said he would have transition language in the
bill, but he thought it was important if the bill passes, that he
certify all the things that are in it.
I don't believe it's that onerous, but I can also tell
you it's damn important to the State of Alaska and to
the residents of the State of Alaska that this stuff
happens. We've had handshake deals before that kind of
went sideways. So, we'll just put it in statute and
there won't be any argument.
MR. MOFFATT responded that the ANGTS is subject to existing
federal law and to actions of Congress [indisc.]. "It addressed
many of these issues."
CHAIRMAN TORGERSON said he knew that and that other legislation
opens it to any applicant under the NGA. He noted that Alaska has
no protection under that Act, except what [its delegation] is
doing in Congress now.
MR. MOFFATT replied, "It is an alternative permitting route to
the ANGTA regime, yes sir."
CHAIRMAN TORGERSON thanked everyone and adjourned the meeting at
5:25 p.m.
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