Legislature(2013 - 2014)BUTROVICH 205
04/03/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Discussion: Travesty Wells, Alaska's Options | |
| HB4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 4 | TELECONFERENCED | |
HB 4-IN-STATE GASLINE DEVELOPMENT CORP
3:57:57 PM
CHAIR GIESSEL announced HB 4 to be up for consideration [CSSSHB
4(FIN) was before the committee]. She invited Rena Delbridge to
continue her presentation from yesterday.
3:58:42 PM
RENA DELBRIDGE, staff to Representative Hawker, co-sponsor of HB
4, Alaska State Legislature, Juneau, Alaska, said she would
first follow up on the question by Senator French about whether
or not the Alaska Railroad (ARRC) enjoys the ability to exercise
the state's power of eminent domain, and the answer is yes,
under AS 42.43.85.
3:59:06 PM
She said she left off yesterday on slide 16 having dealt with
the corporate structure and had worked through some of the other
ways the state may be able to further support AGDC in developing
gas pipelines. She went into the sections that deal more with
alleviating regulatory uncertainties, so that an AGDC pipeline
or any natural gas pipeline that operates as a contract carrier
understands precisely how the state would regulate it and on
what kinds of terms and timelines. She had talked briefly about
the need for contract carriage for natural gas pipelines and
touched on the Right-of-Way (ROW) Leasing Act and the new
regulatory chapter interface in order to enable that contract
carriage while protecting some values that are very long-
standing and important for state policy.
She said both sections require expansions of a pipeline on
commercially reasonable terms providing those expansions on a
state supported pipeline do not violate the terms of AGIA in any
way. Both allow that expansions cannot make an initial shipper
pay more than is allowed in his contract and both require that a
pipeline offer service without undue discrimination so that
there is reasonable and fair access to all comers.
4:00:31 PM
SENATOR DYSON asked how that gets adjudicated and enforced.
MS. DELBRIDGE answered that it's one of the covenants a state
lessee has to agree to in order to receive a state right-of-way
lease. Another covenant also says that any disagreement about
the covenants or terms of the lease will be governed by the
applicable laws of the land. The DNR issues that right-of-way
lease and, therefore, is also able to enforce it.
She explained that the Regulatory Commission of Alaska (RCA) is
tasked with regulating an instate natural gas pipeline contract
carrier; they have specific key points both in evaluating the
different tariffs that the pipeline puts forth and evaluating
how open seasons are conducted to make sure that things are done
fairly and without undue discrimination.
SENATOR DYSON asked who decides if it's unfair discrimination.
MS. DELBRIDGE replied if it's alleged as a violation of a
contract under the ROW Leasing Act then the state would be able
to bring that up, and the applicable laws of the land through
the courts would be able to adjudicate that. If it's brought up
through the RCA violations, RCA will adjudicate it.
SENATOR DYSON said under the former it will go to court
probably.
MS. DELBRIDGE responded that was her understanding.
SENATOR DYSON remarked that the North Sea has set up one of the
better arbitration processes.
MS. DELBRIDGE said there is allowance for an arbitration process
for disputes between contracting parties - a carrier with a
contract with a shipper - within the pipeline contracts. But
when it's with the state or another party, the applicable laws
stand.
She said the RCA section also includes open season oversight so
that they make sure perspective new entrants to the pipeline
have opportunity. This section also has capacity availability
notification rules, so if at any time the pipeline has excess
capacity either available for firm contractual long-term
shipments or for short-term interruptible service, they need to
have devised a means to routinely notify potential shippers of
that availability giving them a chance to get in.
4:03:42 PM
Section 11 on page 30 of the bill is the key section that
introduces special covenants that apply to a contract carrier
natural gas pipeline. Sections 6, 8, 9, and 10 are all
conforming. These covenants were talked about yesterday and
right now any pipeline that goes to get a right-of-way lease
from the state needs to agree to a set of 14 covenants. Of
those, all but three are still applicable no matter whether
you're a common or a contract carrier. For instance, you may not
abandon a pipeline that you build on this land lease; you must
give the state access to inspect your records and look at what
you are doing on this lease.
She said that several covenants specifically require common
carriage, because they were crafted in a time of oil pipelines,
but a large natural gas transportation pipeline will need to
operate as a contract carrier. So, the sponsors of the bill
worked with the administration and others to make sure that the
nuts and bolts of those covenants remain the same for contract
carriage while keeping the principle or the intent behind a
common carriage covenants. So, these contract carrier covenants
will still require a pipeline for contractual terms to provide
connections with pipelines in other facilities, to expand on
commercially reasonable terms, and to ship without
discrimination.
4:05:26 PM
SENATOR FRENCH said it seems the bill is opaque about where the
right-of-way is, but the backup material for the ASAP is pretty
clear that it is down the Parks Highway to Big Lake.
MS. DELBRIDGE responded that the bill addresses the state's ROW
Leasing Act without specifying routes. So, it's not trying to be
opaque as far as the route goes. AGDC has applied for and has
received a state right-of-way lease that does, in fact, extend
along that Parks Highway route.
SENATOR FRENCH asked if this pipeline would go to Big Lake.
MS. DELBRIDGE responded that when AGDC was tasked under HB 369
to pull the state's existing work together and find the route
that best maximizes the ability to get gas into the hands of
Alaskans, then to start permitting, and look towards how to get
this project plan together, they identified that. However, it is
understood that while they are charged with following through
and going to work on the pipeline described in the project plan,
they may do so with modifications as appropriate. One of those
modifications could be the lack of customers in an open season
along the route, in which case they may need very well to go
back and reengineer in order to get the gas to wherever the
customers want it shipped.
SENATOR FRENCH said that would be post open season, which is set
for the end of 2014. So, at least for the purposes of this bill
and this timeframe, until the end of 2014 we're pursuing a gas
pipeline that is going to go to Big Lake.
MS. DELBRIDGE replied yes.
SENATOR MCGUIRE said, as the group considers who their customers
might be, is there room - in the optimization report the line
changed its size and compression rate - partly to avoid the
expense of the straddle plant in Fairbanks, which the residents
of Fairbanks were going to pay for. While she understood that,
it also raises concerns with respect to liquid natural gas and
propane supplies. So, she asked if the corporation did develop
through its discussions parties interested in more propane and
more liquids, could it decide to go back to the earlier version
that was 24 inches with higher compression.
4:09:14 PM
MS. DELBRIDGE responded that the legislation empowers AGDC as a
corporation to be flexible in responding to those commercial
markets. So, if the dynamics with the shippers shift completely
during an open season or in advance of, they are able to
accommodate that providing they are getting the gas to Alaskans
at the lowest possible rate.
The AGDC did an "expression of interest," which is an informal
nonbinding solicitation of the market out there to try and
determine interest and had good interest from potential shippers
on this project. They also did not have the interest that was
necessary to maintain a pipeline that was a liquids-based
pipeline. This lean gas scenario is still able to ship a stream
of propane with - it is available, providing that in an open
season someone is there that wants to purchase it.
As far as LNG goes, that would depend on whether the shipper
wants to ship gas and then liquefy it - and they would have that
ability to do so.
SENATOR MCGUIRE said she looked forward to hearing that issue
elaborated a little more. She knew they wanted to get over the
straddle plant hurdle. LNG is such an exciting opportunity, but
she also wants to see more emphasis on propane for rural Alaska.
MS. DELBRIDGE responded that AGDC is able to look at all those
possibilities as long as they have a signed long term contract
with a shipper.
4:11:27 PM
FRANK RICHARDS, Pipeline Engineering Manager, Alaska Gas
Development Corporation (AGDC), Anchorage, Alaska, said as Ms.
Delbridge identified, the expression of interest that was held
in the 2011 timeframe did have folks come and talk about their
desires and the products they would like to ship.
He said that as Mr. Dubler said yesterday, there is 1.5 percent
of propane in the gas stream they are currently envisioning and
that equates to 3,500 barrels and if there was a commercial
entity that wanted to produce that, he would entertain that.
Right now that is not in their charge.
4:12:43 PM
SENATOR MCGUIRE said nothing in HB 4 limits or narrows in scope
her mission of considering all the business opportunities that
are out there in terms of firm transportation offers. So, as
they move forward, she could consider compression changes,
diameter changes, and market changes for LNG, if a customer
comes forward and wants to go ahead and take up propane as a
market.
4:13:45 PM
MR. RICHARDS explained that as they looked at the project in
2012: the market with natural gas liquids and what was happening
in the Lower 48, the cost of having a higher pressure pipe that
could transport those natural gas liquids, how that would impact
Fairbanks with the straddle plant, and ultimately the south end
that would extract those NGLs and found that those costs were
not as envisioned originally, and it weren't going to be as
beneficial to the project. So, then they looked at what was
going to be the net rate base to the consumers, because their
charge is the lowest possible cost to the consumer. That is when
they started looking at the pipeline diameter and compression
changes; removing the compressor stations and using the ones in
route already would reduce the environmental footprint. And
going forward to the open season and having meaningful
discussions with the shipper would give them the indication of
what they would ultimately be able to produce within the
limitations for 500 mcf set by AGIA.
SENATOR MCGUIRE remarked that her last point imbedded in the
optimization report was the movement in the financing mechanism
out to 30 years that created economies of scale and she wanted
them to retain that notion in looking at different business
models to achieve other results.
4:16:10 PM
SENATOR MICCICHE asked him to clarify what percentages of C2-
plus Alaskans are using in Cook Inlet.
MR. RICHARDS replied that the Cook Inlet gas treatment currently
is 1,000 btus for the gas that is coming out as opposed to gas
on the Cook Inlet which has a higher btu rate. He didn't have
the percentage of Cook Inlet gas.
SENATOR MICCICHE said his point was that it has zero C2-plus
essentially and a slightly richer stream could be used for the
demand.
SENATOR MICCICHE asked if the AGIA compliant line is
500mmcf/day, just delivering it to instate users would leave a
lot of gas for other uses. One would assume someone will build
other facilities or bring other facilities to life that would be
using the remaining gas.
MR. RICAHRDS said the instate use for both Anchorage and
Fairbanks is on average about 240 mmcf/day leaving 250/60
mmcf/day available for other uses, including LNG export.
SENATOR MICCICHE said he was trying to point out that they are
not defining what happens with the gas; they are building a
highway. And what happens on the off ramps is an opportunity for
Alaskans to create a lot of other industries and hopefully some
export options.
MR. RICHARDS said the expression of interest they held gives an
indication that there were buyers of the gas that had intentions
to use that proposed amount.
SENATOR FRENCH bluntly stated that it's got to happen or else
this line doesn't make economic sense and half the rate case in
their feasibility study was based on exporting 240 mmcf/day. He
asked him to talk a little more about that export. Did
ConocoPhillips express interest?
4:20:03 PM
MS. DELBRIDGE said from the sponsor's point of view that is not
necessarily the plan at all. ExxonMobil, Anadarko,
ConocoPhillips or BP could all put gas in. Any other players
could put gas into this pipeline. The end users for half of the
pipe that Alaskans wouldn't be using can be any kind of anchor
tenant - large mines along the route from Fairbanks south, other
potential value-added industries, and gas to liquids in the
Matsu Valley - for instance. Folks from Agrium are still around
wondering what it might take as far as gas prices and supply
certainty to enable them to rebuild their business in Alaska.
MR. RICHARDS said AGDC's expression of interest was actually
held before he came on board, but he knew Dan Fauske was on line
to talk about the outcome.
4:21:22 PM
DAN FAUSKE, President, Alaska Gas Development Corporation
(AGDC), Anchorage, Alaska, said the expression of interest
meeting that was held in May 2011 was held in a confidential
manner in the sense that those that attended listened to AGDC's
presentation (with the express purpose of having 500 mmcf and
that Alaskan usage raised 240-260 mmcf/day) and questions were
submitted only in writing. They received non-binding expressions
of interest in excess of the 500 mmcf/day.
SENATOR FRENCH stated that just two months after that took
place, his report included LNG export as being one of the major
industrial anchors for this line. So, he assumed there was an
expression of interest from ConocoPhillips to buy gas to export.
MR. FAUSKE said he was bound by the agreements he had signed.
AGDC did three studies: LNG, NGLs and GTLs; they also laid out
in the report that of the three, based on their analysis that
LNG presented the most likely opportunity for anchor tenant
usage. But you would only know that for sure once you arrived at
an open season where shippers, producers and others would submit
their requests.
4:24:01 PM
MS. DELBRIDGE proceeded back to the Right-of-Way Leasing Act and
the included covenants. She had listed the ones that would still
apply to both common carrier pipelines and contract carrier
natural gas pipelines:
-covenant 3 that the pipeline will keep books, accounts, and
records;
-covenant 4 that the pipeline will give the state access to its
property and records for inspections;
-covenant 8 says the pipeline needs to take care of the lease
hold, promptly repair damages and promptly compensate for any
damages; and
-covenant 13 says the pipeline is liable for damages to the
state to that right-of-way lease.
4:25:21 PM
The covenants that change subtly are: covenants A1, 2 and 5
(page 30, section 11 of the bill). The first one deals with
transporting gas without undue discrimination. These covenants
are very similar so that a pipeline is required to accept and
transport and convey gas without discrimination.
The contract carrier covenant removes any references to crude
oil, because this is for natural gas pipelines only, and it
allows the carrier to provide its service subject to contracts
with the shippers instead of as required by the RCA. It further
removes the requirement of the RCA to determine the
reasonableness of a pipeline's action as a common carrier.
MS. DELBRDIGE said the next covenant deals with interchanges and
they are very similar requiring a pipeline to interchange
product and provide connections with other pipelines and
facilities. The common carrier covenants turn to the regulatory
agency for the rates and regulations governing those
connections. The contract carrier covenants, instead, turn to
the contracts between the shipper and the pipeline for
determining those rates and regulations for interchanges.
Finally, the covenant dealing with connections; the common
carrier covenant for connections requires both: common carriage
by name and expansions; the contract carrier covenants also
require expansions but only on commercially reasonable terms.
4:26:32 PM
SENATOR FRENCH said subsection (c) on page 31, lines 26-30, says
the line will be expanded unless it bumps up against AGIA and
asked if it was the sponsor's intention to not conflict with
AGIA.
MS. DELBRIDGE answered yes. She said this language is in AGDC
corporate statutes, the ROW leasing covenants, and twice in the
regulatory section.
SENATOR FRENCH said he had legal concerns about the construction
of the language and had some language that might tighten it up.
MS. DELBRIDGE thanked him saying they would be happy to look at
it. Again, she said, AGDC already has an existing state right-
of-way lease providing for the possibility that the state would,
in fact, come back and amend the ROW Leasing Act covenants to
allow contract carriage.
4:27:30 PM
Passage of HB 4 would do that, and therefore, section 25 on page
55 expresses the legislative intent that AGDC's existing right-
of-way lease is amended with passage of this legislation. So,
AGDC is promising to uphold those contract carrier covenants
that are contained in the bill. The legislation, itself, does
not change the terms of other existing state right-of-way
leases.
4:28:20 PM
MS. DELBRIDGE moved on to the RCA provisions saying that under
this legislation the RCA is charged with regulating an instate
natural gas pipeline that serves as a contract carrier. The new
regulatory section is in section 21 on page 36; section 18 is
related; sections 5, 19, and 20 are conforming.
Section 18 that is related: a public utility may contract
directly with AGDC for a shipment on this pipeline of gas that
the public utility owns. If it does, then the public utility's
contracts are subject to the same level of oversight as any
other shipper in AS 42.08. There is also the potential that a
public utility may not own gas and pay to transport gas, but may
receive gas from this pipeline and then send that gas out or
store it. So, they might have related contracts that are not
direct shipping contracts. So, section 18 of the bill provides
the public utilities that assurance that if they do, in fact,
have related contracts, that they are able to submit those
before they take effect and therefore, the RCA can preapprove
them. So, the utility knows that the contract will be upheld
when it goes to recover costs.
SENATOR FRENCH asked if those contracts will be reviewed under
the same legal standard as shipping contracts.
4:30:18 PM
MS. DELBRIDGE answered yes. The sponsors believe that this gives
the public utilities a level of assurance that if they receive
and then go to use gas off of this pipeline, whether or not they
are a shipper, that they will be able to recover those costs in
their rates.
She said section 21 is the new regulatory chapter that mandates
this base-line package of rates and terms that is cumulatively
the recourse tariff. This is the initial offering the pipeline
is getting together as it's packaged to lay out to shippers.
This legislation requires the RCA, in advance of entering
contracts with potential shippers, to approve this recourse
tariff. The terms have to be "not unduly discriminatory" and the
rates need to be cost-based.
4:31:28 PM
The state needs a reasonable range on three key levers: the rate
of return, the capital structure and the depreciation method.
The RCA looks at this proposal and makes sure those things are
met in terms of their reasonableness, which is defined as
whether or not they are similar to what similar pipelines are
being allowed either under the RCA or the FERC.
She explained that the initial recourse tariff, once approved,
serves two purposes: first it is a default rate. If someone does
not want to or cannot negotiate with a pipeline during an open
season, they may simply sign up for service using this recourse
rate. It is RCA approved and available to absolutely anyone that
wants service.
SENATOR FRENCH asked how the sponsors arrived at the use of
"unduly discriminatory" standard as opposed to the gold standard
for "just and reasonable."
MS. DELBRIDGE replied that not unduly discriminatory is for the
terms and conditions of service. The RCA makes sure that the
carrier is able to decide what terms of service they offered
their shipment service on and it needs to be fair. It cannot
discriminate among different kinds of shippers on the pipeline.
SENATOR FRENCH asked why not just say the terms have to be "just
and reasonable."
MS. DELBRIDGE replied that "just and reasonable" tends to mean
something different to the RCA than "not unduly discriminatory."
It was their guidance that if AGDC didn't want them to use their
standard definition of such a term that they make sure another
term that reflects the level of review they want.
4:33:16 PM
SENATOR FRENCH asked the chair or the bill's sponsor if they
anticipate hearing from the RCA before the bill passes out of
committee.
CHAIR GIESSEL answered that they weren't on the schedule, but
the Department of Law was in the room and on line and directed
the question to Mr. Goering.
4:33:41 PM
SENATOR FRENCH asked what the reason was for using unduly
discriminatory language versus something more common like just
and reasonable.
STUART GOERING, Assistant Attorney General, Department of Law
(DOL), Anchorage, Alaska, said he was assigned to represent and
advise the RCA, but he was here today on behalf of the DOL. He
answered that the standard Senator French was referring to is
common to both pipeline carriers and public utilities. The
complete standard is "just and reasonable, not unduly
discriminatory or preferential." That is the standard commonly
applied to tariffs for both public utilities and common carrier
pipelines and this legislation is trying to limit the scope of
the RCA's review of the recourse tariff in a particular way.
While he couldn't speak for the sponsors or the drafters of the
bill, he could say that the "just and reasonable" part of the
standard typically has to do with making sure the rates are
based on costs and have a reasonable amount of return. Rates
also have to be "not unduly discriminatory" or preferential;
that concept is not usually applied in pipelines but in
utilities where there are multiple classes of service. Rates can
be set in a way that shift costs from one rate class to another
and that could be discriminatory, as well. So, in the public
utility arena the rates could be discriminatory in addition to
being "unjust and unreasonable." In the pipeline arena, at least
as far as common carriers are concerned, there typically is a
single rate, although common carrier pipelines are allowed to
have separate rates for firm service and interruptible service.
The discrimination provisions are typically to prevent
discrimination between customers. The discrimination in that
case would be in the provision of service and not in the rates.
What he thought the sponsors were getting at is that the "not
unduly discriminatory" standard is intended to direct the RCA to
the relatively narrow discrimination in service that might occur
between customers and not look at rates, because the bill as
written does not permit the RCA to specify rates or rate design
(page 39, line 27). The unduly discriminatory standard is
designed to reinforce that.
SENATOR FRENCH condensed his answer to: this bill is designed to
limit the scope of review of the recourse tariff by the RCA.
MR. GOERING said that was a fair assessment.
MS. DELBRIDGE remarked that the sponsor's intent is to make sure
there is a strong level of regulatory oversight commensurate
with the nature of a contract carrier pipeline.
4:39:45 PM
She explained that the rates undergo a different review within
the recourse tariff; it is not the traditional RCA rate making
procedures that might be for a public utility or a common
carrier pipeline where you have one rate that can keep changing.
No one is signing long-term shipping commitments on the common
carrier pipeline necessarily that have to serve as the financing
for that pipeline and there is no assurance that your gas is
always going to be there. The sponsors tried to keep that in
mind while accommodating the right level of review. This
recourse tariff starts and gives an opportunity for everyone to
get in on the pipeline. The rate is cost based and has an
approved rate of return that is reasonable based on similar RCA
and FERC decisions. The rate has to also incorporate a
reasonable capital structure and depreciation method evidenced
by its similarity to others.
SENATOR FRENCH asked who would review that, because they just
heard from the DOL attorney that RCA is forbidden from requiring
rates, rate design or tariff rates or regulations.
MS. DELBRIDGE answered that the RCA is prohibited from setting
them itself; the RCA is absolutely charged with reviewing these
and deciding whether or not a rate meets the standards within
the bill. It is not rate making or setting.
SENATOR FRENCH asked under what standard that review will be
conducted.
MS. DELBRIDGE answered the standard they will use to review the
initial recourse tariff is whether or not the rates are cost
based, have a reasonable rate of return and a reasonable capital
structure and a reasonable method of depreciation; and within
that tariff if the terms are not unduly discriminatory. There is
a different standard of review for the precedent agreements (the
signed contracts for shipment), but those also have to come back
to the RCA for a review. In that case the RCA is directed to
make sure that those contracts are just and reasonable as
evidenced by being made at arm's length. If they are between
affiliated parties, the RCA embarks on a potentially higher
standard of review.
4:42:04 PM
SENATOR MICCICHE asked where the RCA requirement to review was.
MS. DELBRIDGE answered that the general powers and duties of the
RCA language started on page 37, line 18 and says:
The commission shall regulate under the provisions of
this chapter an instate natural gas pipeline. It shall
require permits for construction, extensions and
connections....It says on page 38 some things that the
RCA may do: they may do: they may review and approve
recourse tariffs. They must be filed; the RCA may
review those and they either need to approve or deny
those.
Mr. Goering noted that the RCA needs to comply with language on
page 39, line 26, saying that "except as provided in this
chapter, the Commission may not require rates, rate design, or
tariff rates or regulations." It also may not go beyond what is
provided in this chapter and require a certain rate.
SENATOR MICCICHE said he was just looking for information and
asked if she invented the contractor carrier terminology or if
it exists somewhere else.
MS. DELBRIDGE answered that most of the natural gas pipelines in
the Lower 48 are contract carriers; FERC regulates the ones that
go beyond state lines. As contract carrier pipelines they have a
history and have been working with negotiated rates for quite
some time. Something like "not unduly discriminatory" is a very
standard regulatory term; the "just and reasonable" standard is
very standard, too, and doesn't have an extraordinarily precise
definition in that what is "just" tends to be what is fair.
SENATOR MICCICHE said these seem like very common pipeline terms
and maybe Alaskans are just not as experienced with contract
carriers.
MS. DELBRIDGE said he was right, Alaska statutes don't provide
for contract carrier pipelines, because to date it has seen only
oil pipelines that are generally common carriers.
4:45:21 PM
SENATOR FRENCH asked if most contract carrier pipelines in the
Lower 48 are regulated by the FERC.
MS. DELBRIDGE answered yes.
SENATOR FRENCH asked if the same approach is taken in this bill
for our contract pipeline that FERC takes in overseeing
pipelines in the Lower 48.
MS. DELBRIDGE answered that there are similarities, but they are
not identical. FERC allows for negotiated rates; it does not
require open seasons for a pipeline and this bill does. That is
because despite what someone else might do the sponsors are
absolutely making sure that those opportunities are provided for
anyone new coming in to have real access to opportunities and
fairness and some level of transparency in how they are able to
get service.
SENATOR FRENCH asked - although he wasn't requiring an answer
now - if anyone had prepared a checklist or side-by-side with
respect to how FERC would regulate this project were it a
typical Lower 48 contract carrier pipeline and versus the
proposal. It's hard to get a grip on what sort of pipeline this
is. Is it state run? Is it a free market pipeline? It's clearly
going to be a monopoly pipeline and that raises one's regulatory
concerns.
MS. DELBRIDGE responded that the sponsors were told firmly that
the the legislature decides if something should be regulated; it
decides how it should be regulated and it decides who it wants
to delegate that task to. They were encouraged to be
extraordinarily clear in any direction to the RCA so they are
certain of what they are being asked to do, under what standards
and with what tools. There was no desire to imitate what FERC
does. There was also an attempt to make sure that things are
incorporated that are not required by FERC, but reflect things
that the sponsors believe are important policy calls for Alaska,
like requiring the open seasons and the mandatory expansions.
4:48:40 PM
MS. DELBRIDGE said overall there is the mandated baseline for
the initial recourse tariff that the RCA needs to approve before
the pipeline enters into contracts with potential shippers. Once
that tariff is approved, the pipeline can go out and hold its
open season. In that open season it can negotiate with different
shippers; the outcome of those negotiations are called precedent
agreements; they are contracts that are generally conditioned
related to a number of things like construction schedule and
different permits being acquired. Once those precedent
agreements have the conditions met, they become firm
transportation service agreements before pipeline operations
start. Those precedent agreements can include a negotiated rate.
So, while the pipeline offers the initial recourse tariff that
is approved by the RCA, the pipeline and its shippers can then
negotiate the final rate that goes into their contract. The
sponsors know and the AGDC is very clear that you need that
ability to have long term shipping contracts on a contract
carrier pipeline and negotiated rates provided that those
negotiations are done without unlawful activity or duress or
unfair market dealing and that they are made between two
unaffiliated parties at arm's length.
SENATOR FRENCH said review of the precedent agreements is one of
the cornerstone pieces of the bill, and language on page 42/3
says "in the review of the precedent agreements under (a) of
this section" that the crucial shipping contracts are going to
determine the terms under which gas is moved from the North
Slope to Big Lake and then on to an LNG plant or somewhere else.
This bill specifically describes as carefully as possible what
the RCA shall do; it says the commission "shall" and "must"
unless - unless what? Unless the Commission finds unlawful
market activity or unfair dealings such as fraud or duress
affected the rate? It struck him that this means anything short
of criminal activity "must" be approved by the RCA; the language
tells them to do it. Now he wanted her opinion and the RCA's
opinion.
4:52:33 PM
MS. DELBRIDGE responded that the sponsors approached this in the
sense that if two parties willingly enter into a contract at a
price for a service that both parties agree is fair that that is
a reasonable contract and it should stand.
SENATOR FRENCH asked for a monopoly pipeline?
MS. DELBRIDGE responded for a pipeline that is providing a
service in which people are free to either contract for service
or not. If the pipeline is affiliation with someone shipping on
it, then there is a heightened level of scrutiny required by the
RCA to really backstop what might be happening in a contract
that is not cleanly done by non-affiliated parties.
4:53:29 PM
CHAIR GIESSEL asked Mr. Goering if he had comments and he
didn't.
4:54:02 PM
DARRYL KLEPPIN, Commercial Manager, Alaska Gasline Development
Corporation (AGDC), Anchorage, Alaska, said that the section
Senator French highlighted on page 43, line 3, says "arm's
length between parties is just and reasonable unless the
commission finds et cetera...." One of the key issues here is
what "arm's length" means. The definition is further down on
page 43. The first criterion is if they are incorporating the
approved recourse tariff that the RCA approves in that precedent
agreement. If they are, then that's deemed to be arm's length.
If it does not incorporate the recourse tariff, then it falls to
these other steps: first of all that the precedent agreement is
between two state-owned entities (that is deemed arm's length),
and the parties are not affiliated.
SENATOR FRENCH asked if arm's length usually implies one party
on one side and the other party on the other side.
MR. KLEPPIN answered that AGDC is being set up as an independent
state corporation and the bill also has a provision to set up a
separate independent gas marketing entity. If the contract was
between those two entities, it would be deemed arm's length. If
the parties are affiliated, then is it similar to other
precedent agreements? If it's not, it falls into the RCA review.
4:55:57 PM
SENATOR FRENCH asked where "affiliated" is defined.
MS. DELBRIDGE replied that it is not defined in bill, but
language within RCA's existing statute.
MR. GOERING added that there are definitions in both the Public
Utilities Act (AS 42.05.990(a)) and the Pipeline Act (AS
42.06.630(1)), which apply only within their chapters. If there
was no definition in AS 42.08 in the Contract Carrier Pipeline
Act the Commission would likely use the definitions from the
other jurisdictional provisions by analogy.
SENATOR FRENCH said he didn't think they were allowed to look
outside of these provisions and thought they might need to put a
definition in this chapter.
MR. GOERING recommended including the definition in AS 42.08
just to avoid any ambiguity.
4:59:10 PM
MS. DELBRIDGE said the process for reviewing the recourse tariff
requires revisions post construction when 95 percent of the
costs are known instead of estimated, so there is an ongoing
accurate representation of what the actual costs of service on
this pipeline are to be available as the default price if anyone
wants to get in on any interruptible short-term capacity that
comes up or other space. Those revisions are also required in
advance of any open season that the pipeline has so that the
newest and most current information is available.
She said this legislation includes a triennial rate review;
every three years after operations start the pipeline needs to
supply full, current cost data to the RCA. This cost data is a
massive quantity of information that supports the different
elements that create a rate. The RCA is required to look at it
and to make sure that the rate of return is as stated. It's
highly unlikely that a rate of return is going to result in a
greater return than allowed to a pipeline.
MS. DELBRIDGE explained that a prior committee incorporated a
provision to address the potential of excess profits. So, if the
pipeline ends up earning more profit than it was allowed to by
the RCA, those extra profits need to go into a segregated
operating reserve fund. That reserve fund grows until it reaches
20 percent of the annual average operating costs. If still
making more profit is being made, then the RCA allows the
opportunity to earn and that needs to go towards directly buying
down the rates the current shippers, contractual or otherwise,
that are paying to ship on your pipeline.
CHAIR GIESSEL asked where specifically in the bill this review
can be found.
MS. DELBRIDGE said it is on pages 52-53. She added that the
sponsors' intent in requiring these different levels of ongoing
review is so that there is current cost information available,
double checking, and no opportunity to have those run-away rates
of return that theoretically could be possible, and that there
be some boundaries. They also supply the RCA with all of the
cost data that will help them make sure that the tariffs going
into an open season are really representative of new costs and
current operations.
5:02:18 PM
SENATOR MCGUIRE said she wanted to be sure that once the 20
percent threshold was reached and was returned back to shippers
to reduce tariffs that it would then be returned to consumers
via rate reductions and Ms. Delbridge just answered how that
happens. He asked her to more fully describe how consumers
benefit.
MS. DELBRIDGE answered that the RCA would require the pipeline
to buy back down the rates that the shippers are paying. The
shippers may or may not be public utilities and nothing mandates
that public utility to pay down the rate that its consumers are
paying.
SENATOR DYSON asked how to buy down a rate.
MS. DELBRIDGE explained that the RCA initially determines
whether or not the proposed rate of return is reasonable. Every
three years after operations, the pipeline needs to provide the
RCA with its full cost data and the Commission will then be able
to determine whether or not they are earning somehow more than
allowed.
SENATOR DYSON asked once it's decided they are making more and
it has been put into the segregated account, how do they buy
down the rate.
MS. DELBRIDGE replied that they need to return the excess money
to the people that paid it to them.
SENATOR DYSON asked how that was done.
MS. DELBRIDGE said that would be up to the carrier to determine.
SENATOR FRENCH asked who the carrier is here; it sounds like
AGDC.
MS. DELBRIDGE replied that she was using carrier and pipeline
interchangeably; a carrier is a pipeline that has been
certificated. So, if you are operational, then you are a
carrier, otherwise you are maybe a pipeline company.
SENATOR FRENCH asked who would do that; AGDC?
MS. DELBRIDGE replied that this regulatory chapter would apply
to any instate natural gas pipeline contract carrier.
SENATOR FRENCH apologized saying that this bill had been in
committee for about two days and he didn't know the details as
well as she did. He asked if the bill sponsors have a vision for
who would own and operate this pipeline or if that is a blank
question with no answer.
MS. DELBRIDGE replied that the bill sponsors have their own
thoughts just as many other legislators do; what they have done
is equip AGDC to determine that outcome based on what generates
the greatest results for Alaskans and gets gas to Alaskans at
the lowest possible rates.
SENATOR FRENCH remarked, "So, we don't know." ConocoPhillips
could end up owning this line and somehow it would work out
great for him as a customer in west Anchorage.
MS. DELBRIDGE responded if the gas is also being provided to
Alaskans and everyone else that might want to pay to have gas
transported on this line for any purpose and has had the
opportunity to do so.
SENATOR FRENCH said this brings into account his concern that at
some point there will be $2-3 billion state dollars put to work
on that pipeline and he wanted to make sure those dollars used
to buy down the price of this project to make it economically
work will rebound to the benefit of consumers like him and his
neighbors in west Anchorage or Fairbanks and not to
ConocoPhillips and their LNG plant. So, he wanted to know what
part of this bill bi-furcates the application of state capital
dollars to the tariffs.
5:06:53 PM
MS. DELBRIDGE replied this bill does not allow for additional
state capital dollars without that future decision and
appropriation by another legislature and AGDC does not
anticipate needing any additional capital dollars from the state
beyond this initial segment.
SENATOR FRENCH stated they differ about the likelihood of that
eventuality, but it's still extremely important; he thinks Cook
Inlet gas will beat the price of North Slope gas forever,
because it's in their backyard and there's lots of it. So, at
some point the price of this pipeline will need to be bought
down and he wanted the benefits to flow to consumers and not to
industrial users, and he was looking for a way to set that
mechanism in place. This pipeline is not like most because it
needs a huge industrial anchor to make it work economically and
he believed that anchor is the LNG plant on the Kenai Peninsula
that is in the plan the AGDC put out. It makes sense.
MS. DELBRIDGE said she wasn't clear what the question is.
SENATOR FRENCH said he would write it down and make it more
precise.
5:08:34 PM
CHAIR GIESSEL said she had understood that South Korea and Japan
have been in Alaska and are very interested in Alaska's natural
gas and they have the wherewithal to actually build this
pipeline. What if they came to Alaska and said we'd like to
build this pipeline or want to partner with you; how would that
fit in with the AGDC legislation and plan?
MS. DELBRIDGE replied that if someone from Asia or
ConocoPhillips decided tomorrow that they would like to come in
and build an instate natural gas pipeline, nothing is stopping
them. This bill wouldn't prevent it. If they wanted to partner
with the state, AGDC would be equipped to be that partner. Mr.
Kleppin could talk about how that type of arrangement might
work.
MR. KLEPPIN added that a potential Asian end user could be
interested in building a pipeline. Where AGDC has a constraint
in that is that the state can only provide funding within the
AGIA criteria. He assumed that an Asian company would want
volumes larger than 250 mmcf/day and AGDC could not participate
in that unless that limitation was moved.
SENATOR DYSON said he assumed if someone wanted to build a
pipeline they could buy out the assets or the organization that
gets put together including the rights-of-way and permitting and
reimburse the state for its investment.
MS. DELBRIDGE said he was correct and that is possible. AGDC has
the duty of getting gas to Alaskans at the lowest possible rates
and therefore their ability to sell off or do something
otherwise with those assets would be contingent upon those
assets in that tradeoff meeting their mission.
SENATOR DYSON said he assumed there would be a time component
for that evaluation as well and went back to his question about
what happens when the shippers have overpaid over a specific
period of time.
MS. DELBRIDGE explained that those funds get dispersed back by
reducing the rates that they will be paying over the next little
while; specific language is on page 53.
SENATOR DYSON went back to Senator French's interest; if one of
those was a utility that was supplying gas to his neighbors,
that utility could decide what they were going to do to
reimburse for what had become an overpayment.
MS. DELBRIDGE referred that answer to Ms. Grovier, AGDC legal
counsel.
5:12:21 PM
TINA GROVIER, legal counsel, Alaska Gas Development Corporation
(AGDC), Birch, Horton, Bitner and Cherot, Anchorage, Alaska,
explained that the bill's mechanism requires the carrier to
reduce on a volumetric basis the firm transportation service
rates for all shippers for the next three years. So, it's not a
refund mechanism but a rate reduction for the utility going
forward. A utility would presumably have a rate covenant that
she thought would be structured such that they are passing
through to their customers only the rates that they pay.
SENATOR BISHOP asked if that overpayment trickles down to the
homeowner.
MS. DELBRIDGE replied yes; as Ms. Grovier said, if the utility
has a covenant that includes that ability to only recover what
it costs them.
5:14:20 PM
SENATOR FRENCH asked if the lower tariff would flow through to
an industrial customer.
MS. GROVIER replied yes.
SENATOR FRENCH referenced his earlier concern about state
investment in a line and the economic benefits of that not
flowing through to an industrial shipper or an industrial anchor
tenant and asked if there would be a way to structure the
lowering of the rates to flow through to Alaskan consumers and
not to an LNG plant.
MS. GROVIER replied that with respect to an appropriation where
the state was contributing several billion dollars, it would be
within the legislature's purview to structure that appropriation
such that it benefited whoever they want.
SENATOR FRENCH said that makes sense and asked if that would be
better done in this legislation or at a later date.
MS. GROVIER replied that was a policy call, but she observed
that at the time of the appropriation they would know more about
the cost of the pipeline and what the structure would look like
and basically have more information later.
SENATOR FRENCH stated his concern that their ability to know
some of the ongoing economic facts may be shrouded from them due
to confidentiality provisions this bill would enact.
5:16:47 PM
MS. DELBRIDGE clarified that there is no expectation or
provision within this legislation for an additional state
subsidy of a pipeline, although that could come up at a future
point in time.
SENATOR FRENCH asked to take up the capital reserve portions of
this bill.
MS. DELBRIDGE replied that the capital reserve fund is
contingent upon future legislative action enabling AGDC to go
out and actually put the fund together and use it.
5:17:39 PM
She continued that the beyond the triennial review, the RCA
section also requires RCA review of the precedent agreements
(signed shipping contracts following an open season). In this
case the RCA looks at the contracts and makes sure that those
are "just and reasonable" as evidenced by having been made at
arm's length. There is heightened scrutiny for an affiliate
relationship.
The legislation allows for confidential filing of those
precedent agreements, because those are a contract between a
shipper and a pipeline, the terms of which are still being
worked out. However, once those become firm transportation
service agreements they become public; sensitive commercial
information may be redacted. The initial recourse tariff filing
is all publically filed, so the state will have a great idea of
what it is costing to ship gas on this pipeline.
5:18:53 PM
The regulatory section requires that an instate natural gas
pipeline go to the RCA to get a certificate of public
convenience and necessity (CPCN), a building permit. There are
few special terms on that for an AGDC pipeline, but essentially
reflects the state sanctioned mission that through passage of
this legislation creating AGDC as its own standalone entity the
legislature will have set it on.
For any other applicant, Ms. Delbridge said the RCA will still
need to make its full finding of whether or not the proposed
pipeline or service is needed, and if the applicant is fit,
willing, and able managerially, technically, and financially to
provide this service or the utility that is being requested.
5:19:17 PM
MS. DELBRIDGE said the certificate discussion was on pages 36-37
and the process for getting a CPCN for an instate natural gas
pipeline was on pages 44-45.
An important part of the RCA chapter is their ability to
intervene if there is a dispute between the carrier and shippers
that threatens the public health and safety. If a public utility
doesn't get the gas that it needs in the winter, for instance,
then the RCA is fully empowered to absolutely step in and take
over and settle things. This legislation allows the contracts
between a pipeline and the shippers to include a dispute
resolution method, but it has to be uniform among all shippers.
She said that any dispute resolution method must give all
shippers notice of the dispute so that they are able to
participate and protect their interests that may be affected by
the outcome of a dispute with another shipper.
The RCA is also empowered to handle any kind of disputes or
complaints about the conduct of an open season or about whether
or not an expansion is being done or not on commercially
reasonable terms. If there is a dispute on an expansion or a
potential open season, the RCA can actually step in and if they
decide that the carrier should be holding the open season or
should be expanding on these commercially reasonable terms, they
may order that expansion.
MS. DELBRIDGE explained that the regulatory section further sets
standards for fair and accessible open seasons, and rather than
tell the carrier precisely in the statute on what terms it must
have an open season, the legislation requires that those terms
be set and filed with the RCA and publicized to potential
shippers. The RCA is able to field complaints if someone thinks
that the carrier didn't properly notice an open season, which
denied them an opportunity.
5:22:17 PM
The legislation further sets timelines that are intended to
provide an adequate period of review for the standards that are
set without interfering with the commercial timelines like
holding open seasons and signing precedent agreements.
MS. DELBRIDGE said the open season provisions are important,
because nothing in state law addresses them, because Alaska
doesn't have contract carrier pipelines. Open seasons are
commonly used in the Lower 48 as a mechanism to let potential
shippers know that you have something on the table and that they
are able to participate in that for the terms that are set out.
They are generally regarded as a way to be very fair in
attracting and negotiating pipeline capacity. Language on pages
40-42 require open seasons for initial and new capacity; the
procedures are left to the carrier, but they have to be included
in the terms and conditions of service.
There are minimum requirements for noticing an open season, but
the carrier can go beyond those to attract commercial
opportunities. The carrier has to conduct the open season and
award capacity without undue discrimination or preference. They
need to notice people up front as to how they will decide who
gets the space if too many want space, and makes it clear that
expansions cannot violate the terms of AGIA.
SENATOR FRENCH asked her for more detail on what interruptible
transportation service versus capacity means on page 42, lines
16-17.
MS. DELBRIDGE answered that the sentence means if you have
capacity on your pipeline that is not subscribed in firm non-
interruptible contracts, that you need to provide that service
in an interruptible way short-term, which means you can be
curtailed if someone else comes along and wants in on that
piece. If there is a small segment that is not contracted, the
point is to make that available as equally and fairly as
possible and on reasonable terms.
SENATOR FRENCH said provisions on page 36 and 37 basically say
AGDC is wonderful, financially fit, and is willing to take
action; it goes on to talk about the board of directors and he
wanted to know why language was being so assertive; why not let
the RCA take its own stance on that?
MS. DELBRIDGE replied that it would be redundant to ask the RCA
to make findings that the legislature had already made by
creating the corporation and equipping it with a strong
governance board of directors and making sure that it has the
resources to carry out what it is doing; in particular, creating
AGDC to do pipelines that are in the best interests of Alaskans.
Therefore, the RCA is not to second-guess what the legislature
has done as far as a policy goes.
SENATOR FRENCH asked her to describe the interplay between the
subsection (c) on page 44 and those provisions, because it seems
like a circle. They are asking the Commission to issue a
certificate authorizing whole or in part the operation of this
pipeline to a contract carrier if it finds the applicant is fit,
willing, and able. Why use that language twice?
MS. DELBRIDGE reiterated that this regulatory framework applies
to anyone that comes in and applies under it to provide a
contract carrier for in state gas pipeline service not just to
AGDC. So, while the legislature has made a determination that
the AGDC should go out and do these pipelines and some special
findings that are appropriate, it is not making those findings
for any pipeline that applies under this section. The RCA in
that instance is expected to do as it typically would and make
those findings.
SENATOR FRENCH asked if the provisions on page 44 are in the
event that AGDC decides to not be the carrier/operator.
MS. DELBRIDGE responded affirmatively saying that this
regulation could apply to any number of pipelines that may or
may not be AGDC pipelines, and therefore it is the intent of the
sponsors to provide for those contingencies.
5:27:51 PM
SENATOR FRENCH said that was a good answer, but it implies there
may be more than one pipeline and he was pretty sure they were
talking about the one in-state pipeline.
MS. DELBRIDGE responded that it was the sponsors' sincere hope
that if one pipeline is built there will be other pipelines to
follow. There is also the possibility that whether or not AGDC
is involved in it there might be fruit from the efforts that the
legislature made last year in passing Middle Earth oil and gas
exploration credits, and perhaps there might be a pipeline
somewhere else.
5:29:17 PM
Recess from 5:29 until 6:00 p.m.
6:00:33 PM
CHAIR GIESSEL called the meeting back to order and opened public
testimony on HB 4.
6:01:44 PM
BILL SHEFFIELD, representing himself, Anchorage, Alaska,
supported HB 4 saying it is another step in delivering a long-
term affordable source of energy to a large part of Alaska's
population that will lead to jobs both during construction and
ongoing in the production and delivery of the gas afterwards. It
also has the possibility of allowing the Agrium plant on the
Kenai Peninsula to re-open, reinvigorating the Flint Hills
Refinery, and allowing Fairbanks to have good air quality
without having to face the equivalent of a mortgage payment in
monthly energy costs.
It can also bring important benefits to proposed mining
operations in Livengood by the Yukon River and the Donlin gold
prospect: three-thousand jobs to build a mine over a four-year
period and 1,500 jobs a year from there on. The Alaska Railroad
is a good example of only having 20-railcars coming to Anchorage
from Flint Hills five days a week instead of 130 railcars daily
when Flint Hills was in full production. With cheap gas,
Fairbanks wouldn't have to import all their gas and jet fuel for
the airport from Asia.
MR. SHEFFIELD said AHFC has moved leaps and bounds forward on
this project under the authority given them by creation of the
Alaska Gas Development Corporation. They have brought the EIS
and secured most of the right-of-way approvals. He said this is
not just a concept; this is a project they can do and passing HB
4 is critical to moving it further along. He summarized that he
had been all over the state on his own talking to rotary clubs,
chambers of commerce, economic development committees, unions,
and so on and everyone is getting excited about this gasline.
6:06:15 PM
DAVE DENGEL, representing himself, Valdez, Alaska, opposed HB 4
saying it takes attention and resources away from the gas
pipeline that Alaska truly needs and voters approved more than a
decade ago. It focuses on promoting a gas line that is designed
to be a low-volume line leaving valuable liquids on the North
Slope. This line does not generate significant revenues that can
finance its own construction or contribute to the state's future
general fund revenue program. Only one multi-billion dollar
gasline is going to be built in Alaska in the next 20 years and
if ASAP is the chosen project, the state's loses the promise of
gasline plans Alaskans approved in 2002. He urged them to keep
focused on a large diameter pipeline to tidewater.
6:08:08 PM
JOHN HOZEY, Manager, City of Valdez, Valdez, Alaska, opposed HB
4 saying that sponsors have done an excellent job convincing
everyone that this bill will get gas to Alaskans and not the
global energy markets. It will ensure that all future state
revenue needs will only ever come from oil production and that
our natural gas resources will be preserved for instate use. But
just having gas isn't good enough; that gas also needs to be
affordable; or if you believe that Alaska's gas might belong to
all Alaskans not just those in the pipeline corridor, or if you
believe that over the next several decades future state
expenditures are likely to exceed future state revenues from
just oil production, you might consider other options.
He said the sponsors are dead wrong when they say that this is
the only real project moving forward. Someone needs to show them
years of work that has already been done and the hundreds of
millions of dollars that have already been spent under AGIA as
well as the February 15 letter from all three major North Slope
producers stating that they had finally reached alignment on a
large volume gas line project that would give us everything that
we'd hoped to get out of this legislation and so much more.
6:10:48 PM
DAVE COBB, Mayor, City of Valdez, Alaska, opposed HB 4. He said
only one gasline will be built and they must ensure that it is a
project that provides the most benefits to all Alaskans. A large
volume line to tidewater will include off-take points along the
pipeline to provide natural gas directly to Alaskans. It will
also have an export component and the ability to transport
natural gas liquids for value-added business opportunities.
These critical elements will generate new revenues for the state
of Alaska and provide much needed low cost energy for all
Alaskans.
MR. COBB said the small volume version proposed by HB 4 will
only raise the cost of energy in Southcentral Alaska, do nothing
to address energy costs in rural Alaska, and is not capable of
generating new revenues to offset declining oil production
revenues. In summary, he said HB 4 is a short-sighted
pessimistic view of Alaska's long-term future.
6:11:52 PM
SENATOR FAIRCLOUGH joined the committee.
6:12:46 PM
CINDY RYMER, representing herself, Valdez, Alaska, opposed HB 4
saying the residents of Alaska voted in 2002 to approve a large
volume gasline to tidewater. HB 4 does not help all Alaskans; it
does nothing for most of coastal communities outside of the
Railbelt leaving thousands of Alaskans with high energy costs.
6:14:21 PM
MIKE WILLIAMS, representing himself, Valdez, Alaska, opposed HB
4. He said he had lived in Alaska for all 53 years of his life
and watched a pipeline being built and had seen them struggle
over a gasline and leave natural gas stranded on the North Slope
for years, and now to leave the liquids stranded up there and
build a low volume pipeline is just crazy. Not exporting natural
gas is insane; it would benefit all the people in Alaska.
6:15:22 PM
LOUIS CLARK, SR., representing himself, Valdez, Alaska, opposed
HB 4. He said he has 10 children and didn't need to hear about
possibilities or more studies. He needed something real. The
permitting is already done and they need to get gas for people
who are raising their families here and don't want to leave.
Voting for this will be selling the future of their children and
grandchildren.
6:16:25 PM
DOROTHY MOORE, representing herself, Valdez, Alaska, opposed HB
4. She urged them to support building a line that will serve all
Alaskans. As a lifelong Alaskan she started school in
territorial days in 1951 and managed to graduate from high
school under statehood. She eventually retired from being an
Alaska history and government teacher. She urged them to support
that which will, in a direct way, benefit all Alaskans.
MS. MOORE said she read the original HB 4 and was very concerned
with the secrecy and lack of oversight for the common person.
She was concerned with the exemption from normal procurement
procedures and transparency. It sounds like they could go out
and buy anything and she had seen a lot of waste happen when the
first pipeline was built. Lack of the export component won't
allow Alaskans to take advantage of lower rates and we can't
just do it on our own.
She was also very concerned about the exemption of the judicial
review and the Superior Court judgment. She remembered when TAPS
was built that we were supposed to have cheap gas and heating
oil, and see what we have now? Do not rush this bill to do just
something; make sure this legislation benefits all Alaskans.
CHAIR GIESSEL said this bill is posted on BASIS and that is
where the public can find the changes to it.
6:18:44 PM
LISA VONBARGEN, representing herself, Valdez, Alaska, opposed HB
4 for a lot of the same reasons others have said. This project
is not the short term solution everyone is looking for; it will
not carry liquids and another project is moving forward under
the AGIA process for which an open season had already been done.
For the first time in her life when she looks at Alaska's fiscal
future and the possibility of jobs she doesn't see a lot of hope
for staying here. Maximizing revenues to the state and getting
energy to people at the lowest possible cost through
efficiencies that can be brought by a large volume line to
tidewater is the only way - and that includes exports. Please
think about the future of everyone in the state, she concluded
and not just those along the pipeline corridor.
6:20:55 PM
PAM SHIRRELL, representing herself, Valdez, Alaska, opposed HB
4. She said energy rates were killing our rural communities and
that the focus needs to be on an energy solution that will bring
affordable energy for the entire state. This line will not.
Develop a large-volume gas line that will bring the state
revenues that the TAPS did.
6:21:53 PM
JIM PLAQUET, Membership and Events Coordinator, Alaska Support
Industry Alliance, Fairbanks, Alaska, supported HB 4. He said he
was also a 40-year member of the Operating Engineers Local 302
and a 40-year resident of Fairbanks. HB 4 and the Alaska Stand
Alone Pipeline will provide the most cost effective and time
sensitive schedule for developing a long term affordable energy
solution for Fairbanks and Alaska he said; SB 23 is the short
term energy solution for Fairbanks and HB 4 is the long one.
He pointed out that HB 4 also asks the AGDC to consider other
instate natural gas projects and a larger pipeline to tidewater
with an LNG export component like the project advocated by the
governor. HB 4 empowers AGDC to act on behalf of Alaskans'
interest in providing natural gas to Alaskans; it calls on state
and local governments to participate in ways that will reduce
the rate Alaskans pay for natural gas. The high cost of energy
is crippling the Interior and rural Alaska and it can't
continue.
BOB SHEFCHIK, Chairman, Fairbanks Chamber of Commerce,
Fairbanks, Alaska, supported HB 4. He said HB 4 is a mid-term
priority of the Chamber. He said trucking of liquefied natural
gas as the short term solution and it is also accepted that the
best way to transport gas over the long term is to transition
from trucking to a pipeline. The progress on the ASAP line
including preliminary design, environmental permitting and
right-of-way work places it far ahead of any other instate
pipeline options. The entity created by HB 4 can also serve as a
catalyst and a partner for other pipeline solutions.
6:26:10 PM
KEN HALL, representing himself, Fairbanks, Alaska, supported HB
4, because it has the ability to change energy issues within
Alaska and to deliver gas to much of Alaska. With the gas
storage bill from last year it has the opportunity to expand
beyond just the pipeline corridor that the HB 4 gasline would
support. This conversation is banking on the fact that this bill
will build a pipeline, but it will only get an open season, and
if it is not economic it will not go forward from there.
6:28:19 PM
RICK ROGERS, Executive Director, Resource Development Council
(RDC), Juneau, Alaska, supported HB 4. He said their membership
is diverse: they have producers of energy, both large and small,
oil and gas producers on the North Slope and Cook Inlet,
Alaska's only producing coal mine at Usibelli, as well as other
members with perspective coal projects, developers of renewable
energy including hydro, wind and biomass, and utilities - gas
and electric - whose job it is to provide reliable and
affordable energy to Alaskans. They also have consumers of
energy: rural and urban, industrial and commercial, as well as
residential, including perspective consumers of mining projects
that have significant power demands. With that diversity they
had to examine what this bill does for them all, and they really
like it because it allows the free market to dictate which
project goes forward and whether this project can be a
competitive energy supply for Alaskans. HB 4 gives needed help
up front that is appropriate to get it to an open season, but
then the project has to stand on its own merits; it will have to
sink or swim at the invisible hand of the free market.
He said everyone hopes for a larger capacity pipe shipping wet
gas to tidewater, but HB 4 doesn't interfere with work on a
large diameter pipeline; it just provides an alternative project
should that more advantageous project just not pencil out.
6:31:58 PM
TERRY HINMAN, Denali Borough Community Advisory Committee,
Healy, Alaska, supported HB 4. He said he was speaking
personally as well as a representative of the committee. As a
retiree, he is on fixed income and the rapidly increasing cost
of energy is having a dramatic effect on his life. He is not the
only one in this situation. His electric costs have somewhat
stabilized but they are still well above the national average
and the cost of heating continues to climb. There is an urgent
need for affordable - not cheap - just affordable energy, and a
pipeline for Alaskans can provide that.
He understood the confusion about the different projects, but
there is only one plan that is more than a concept. Compared to
the dollars spent on larger scale ideas with nothing of
substance the ASAP has a long list of accomplishments on a very
frugal budget. Included in the list of accomplishments are:
route, right-of-way, environmental statement, field data, and
more.
A few years ago there was a market for gas and gas products, but
now prices are down. Spending $45-65 billion to move product on
a large volume line has to have a return worthy of the
expenditure. The relatively few Alaskan consumers are not cost
effective for them. The idea of spending $7-9 billion to provide
low-cost gas directly via pipeline and indirectly via river,
road, rail, ocean, and through the grid to Alaskan residents for
the next 100 years does make sense. With a lean gas plan moving
only methane and propane there is no need for expensive
gasification or straddle plants along the route. That is not to
say that if the world market conditions change in the future a
large pipeline with all the gas components or LNG could not be
constructed.
MR. HINMAN concluded that the biggest problem facing our state
is energy and passage of HB 4 would go a long way to addressing
this critical situation.
6:35:27 PM
JIM SYKES, representing himself, Palmer, Alaska, opposed HB 4
saying he had served several years on the Alaska Energy
Authority Railbelt Energy Committee; their purpose was to look
at the energy picture for the Railbelt 50 years out and gas is
definitely part of the mix. But he is speaking against HB 4,
because the proposed gasline is the most expensive option of
all, including the pre-build gasline to Fairbanks and Cook Inlet
gas and including a spur line from a major gas line and
importing LNG. Alaskans could have some of the highest energy
costs in the world.
MR. SYKES said it is troubling that the AGDC is exempt from the
public records law. As a former consumer advocate, he thought
that was a bad way to go. The U.S. Energy Information Agency
indicates that since 2008, natural gas imports in the U.S. have
declined by half. The price has gone down in that same period
from $4.92 to $1.82. The dynamics might change so that we could
actually import gas cheaper than any of the alternatives being
considered.
6:37:39 PM
MIKE WELLS, representing himself, Valdez, Alaska, opposed HB 4.
The ASAP project as proposed in HB 4 is the wrong gasline plan
for Alaska, he said. It will take many years to complete and it
is too small to have the economies of scale to provide energy as
feasibly as a large volume pipeline to tidewater would. Alaska
must generate income through the sale of its gas and we need the
long term job opportunities and value-added industry valuable
gas liquids development can provide. These benefits are crucial
to the future of Alaska and vital in offsetting declining oil
production. HB 4 promotes a project that fails to provide these
key returns to Alaskans and falls short of spreading Alaska's
resource benefits to all, not just those who are geographically
advantaged.
Further, Mr. Wells said, HB 4 limits the AGDC from judicial
review and public oversight that are critical to protecting
consumers. Transparency and the checks and balances that come
with it are vital to protecting Alaskans. There is strong
statewide support for a large volume pipeline from the North
Slope to a deep water port with an LNG export component; this
will always be the best choice for our state. A vote for HB 4
may stop this from ever becoming a reality.
6:40:03 PM
DONNA SHANTZ, representing herself, Valdez, Alaska, opposed HB
4. She said HB 4 appropriates $400 million for another study
that is estimated to cost $10 billion and take at least 10
years; more immediate solutions are needed. At the end of the
day, the North Slope producers will decide when and where a
pipeline will be built, especially if SB 21 passes. She
encouraged them to come up with some serious incentives to get
the producers or their competitors to build a high volume
pipeline to tidewater, but building a ASAP would hinder that.
6:41:27 PM
DEANTHA CROCKETT, Executive Director, Alaska Miners Association
(AMA), Anchorage, Alaska, said that the intent for any
legislation is obviously to relieve Alaskans of their dire
energy situation and for that reason they support HB 4. It would
benefit the mining industry, because mining companies looking at
developing prospects in Alaska, even if they are great deposits,
know they ultimately have to look at how expensive Alaska is and
the infrastructure that is in place here. Energy solutions such
as this one embodies will encourage mining that will ultimately
provide jobs and revenues to governments including the Alaska
Native Corporations.
In addition to needing that energy, Ms. Crockett said the mines
she represents are actually part of a solution, because when the
state looks at massive projects like this, it needs to have a
secure consumer base to warrant the supply that something like
this would provide. Only four hard rock mines in Alaska are
actually connected to power grids and all use some form of
diesel and still need about 50 megawatts more of power.
Development projects coming on line, like Donlin and Pebble,
need anywhere from 150-500 megawatts, and that kind of energy
demand really does justify a large project on this level.
Finally, she said these large mining projects on the horizon are
all looking at how they are going to power their mines; a few of
them are looking at pipelines to bring natural gas into their
region, which would help connect the surrounding communities.
6:44:51 PM
MICHAEL JESPERSON, representing himself, Anchorage, Alaska,
supported HB 4. He said his wife and three kids live in
Anchorage and that he was not involved in any of the resource
industries in the state, but he saw "a lot of funny things going
on." Government is telling him gas is running out in Cook Inlet,
so gas prices will go up for heating his home. Other government
entities are telling him that building a line now is not a good
idea, because it will raise his gas prices. He said Alaska has
had a "pipe dream" for longer than the 46 years he has been
alive and HB 4 will actually help get that line built. It
doesn't limit the size and suggests that it come down the
Railbelt but it doesn't force it to. If you pass this bill, it's
a whole lot easier to build a take-off line now than it would be
to build a take-off line from a pipe that might be built in
another 40-50 years. The state can't wait that long.
6:46:38 PM
ALAN LEMASTER, Director, Alaska Natural Gas Pipeline Coalition,
Gakona, Alaska, opposed HB 4. He explained that this
organization was made up of the communities, organizations, and
associations along the Richardson Highway/TAPS corridor. Their
decision is about what is best for the generations of all
Alaskans.
He said on February 19 this year, Steve Butts, Senior Project
manager of the Alaska LNG Concept Selection, a coalition of
ExxonMobil, ConocoPhillips, and BP/TransCanada, presented its
findings to the House Resources Committee and it noted several
issues that will determine the feasibility of building a gas
line through Alaska. A few of those items were:
1. The line must be a high pressure line.
2. The line should be at least 42 inches.
3. The line must run from the North Slope to tidewater.
4. The line must be able to carry sufficient loads of natural
gas that can be liquefied for sale and transport to the Pacific
Rim countries.
5. The port of embarkation to those countries must be from a
deep water port.
Unfortunately, Mr. LeMaster said, the ASAP proposed in HB 4 will
be a thin-walled, low-volume, low-pressure line carrying dry gas
with no export component and for use only in certain Alaska
communities approved by the AGDC, and it may only be a short
term solution to a long term problem. If that's the case, that
line will be paid for by the people in that region.
To date, two open seasons have taken place with the AGIA, the
most recent in 2012 and its results still remain unknown due to
confidentiality issues; little is being gained. HB 4 takes the
state to another open season, which could take up to two years
or more, and no guarantees that the producers will agree to send
product through the line.
The ASAP will not carry liquid natural gas that would allow of
creation of thousands of value-added legacy jobs.
After construction is complete, the fully funded by the state
pipeline will be sold to a private company to operate, which
will very likely cause energy prices to escalate with limited
control by state regulatory agencies.
In conclusion, he asked them to consider spending the $400
million on an LNG trucking project for Fairbanks to get them
relief in the short term, retrofit the Nikiski plant for
regasification for about $80 million for Cook Inlet, and spend
the remaining $70 million on a proven viable large volume
project to tidewater with an export component for the interim.
6:50:42 PM
MERRICK PIERCE, representing himself, Fairbanks, Alaska, opposed
HB 4. He said he had served on the board of the Alaska Gasline
Port Authority (AGPA) and their mandate is to build the large
diameter gasline to Valdez, a project that has considerable
interest in the Asian markets. But before spending several
hundred million dollars on a study as HB 4 described, he urged
them to consider other scenarios. First, consider that HB 4
proposes studying a project that can never be built, because it
doesn't have fundamental economics supporting it much like the
AGIA scenario where Alaska spent years and hundreds of millions
of dollars studying a gasline to the Lower 48, a line that could
never be built, because it would never be feasible to transport
gas at to a region that already has gas.
The bullet line can only have two markets, instate or export;
and because the proposed bullet line has no economy of scale,
the best base cost to the gas will be around $10 and that is two
to three times the cost of gas that is available on either the
ACHO or the Henry Hub. Who would pay that? Probably no one.
Cook Inlet has a 200-year supply of gas for Alaska according to
the experts - one of the richest gas basins in the U.S. His
research shows that the bullet line could easily cost $500-600
million per year. Spreading that cost out over the Railbelt
population of 400,000 people comes out to $1400 per person per
year - and cost of the gas is extra; proposed equity returns
will go to out-of-state investors and that would terrible thing
for the Alaska economy.
MR. PIERCE summarized that if the real objective is to ensure
that Alaskans, the Interior in particular, have affordable
energy, the money that HB 4 proposes to spend on studies costing
over $355 million could be spent on fully funding short term
solutions like LNG trucking or building a small bore high
pressure gas line from Big Lake to Fairbanks. Either of these
solutions is much less expensive, scalable, and faster by years.
6:54:05 PM
BUZZ OTIS, representing himself, Fairbanks, Alaska, supported HB
4. He had been in business in Fairbanks since 1976 and after
waiting for gas for over 40, it's time to accelerate
construction. Some people think the bill is too complex, but
it's normal for a bill of this nature and significance to be
complex. It has been mentioned that it won't benefit consumers
outside of the Railbelt, but that is short sighted: Cook Inlet
gas is cheaper today, but might not be tomorrow.
He said low cost energy would help Livengood, International
Tower Hills or Eielson; they cannot survive in this state paying
$4 a gallon for heating oil and $.23 a kilowatt hour for
electricity (as in urban area of Fairbanks). It's incumbent upon
everyone to make sure Alaskans have low cost energy regardless
of what project moves forward.
6:56:32 PM
RANDY GRIFFIN, representing himself, Fairbanks, Alaska,
supported HB 4. He said that Valdez is launching a $1 million ad
campaign to try to kill the bullet line. Fairbanks would benefit
from a bullet line compared to continue having no gasline at all
for an indefinite period, but Valdez would not, and he could
understand their point of view. He urged them to not be
intimidated by the powerful ad campaign saying he supported any
kind of way to get gas to Fairbanks including a big line going
to Valdez, if that is found to be economically feasible. He was
in favor of looking at all possibilities, but he didn't think it
was correct to kill the action of the bullet line just because
you want a line to go in your direction. Fairbanks needs to keep
its military presence and a gasline of any sort will do that as
well as lower pollution and reduce the cost of living there.
SENATOR FRENCH said it was good to hear his voice.
6:58:46 PM
GERALD MILLER, representing himself, Anchorage, Alaska, opposed
HB 4. He wished they would get the drilling going on in Cook
Inlet; it has all the gas that is needed for the long term
future and export. He urged them to "get in there and cooperate
with the all Alaska large volume people who have done so much
work." Spur off at Glennallen if that is needed. He didn't like
the secrecy involved with the recent open season and thought
they needed some legislation to deal with that.
7:00:33 PM
LYNN CRYSTAL, representing himself, Valdez, Alaska, opposed HB
4. He said he was a retired grandfather who was very concerned
about the future of his grandkids. Alaska's population is simply
too small to economically support a bullet line. Every major
player in Alaskan business - oil, fishing, tourism, mining,
timber and air freight through Anchorage - rely on customers
outside of Alaska to make a go of it. If they were honestly
looking at the cost of this line, how would this $10 billion
project be paid for without a huge state subsidy? "HB 4 only
delays the bright future we have with a large line," he
concluded.
7:02:33 PM
SHERI PEIRCE, representing herself, Valdez, Alaska, opposed HB 4
for many of the already stated reasons. However, her main
concern was Article 4(AS 42.08.400) on public records, which
states that the commission may by regulation classify records
received from an instate natural gas pipeline carrier for an
instate natural gas pipeline as privileged records that are not
open to the public for inspection; subsection (c) defines a
precedent agreement and states further that:
A person may make written objection to public
disclosure of information contained in a record filed
under this chapter or information obtained by the
commission or by the attorney general stating the
grounds for objection.
In her opinion, this language restricts the transparency of this
project from the public and could serve to protect a legislator,
commissioner or a member of the RCA from disclosing a personal
financial interest in this project. A project of this magnitude
should have as much public transparency as possible.
7:04:57 PM
DEAN DAY, representing himself, City of Valdez, Alaska, opposed
HB 4. He grew up in Fairbanks and as a child remembers that
there were no jobs there. Building an ASAP will give some of the
people in Alaska cheap energy, but it does nothing to address
anything else for the state of Alaska, which is much more
critical.
7:06:16 PM
BILL BLIZZARD, representing himself, Fairbanks, Alaska, said he
is a self-employed land surveyor in Fairbanks. He worked six
years on the TAPS line. In 1981-82 the state spent $750 million
surveying the whole route from Prudhoe Bay to Canada and was
planning on building a 54 inch gasline. They core drilled every
thousand feet and put in compressor stations. All of that has
been done for 550 miles to Delta. The only logical thing would
be to build the one line along that one route, period. The
existing pipeline has a work pad beside it; it has large over-
bends for animals, trucks, and equipment to get under it. The
only logical thing to do would be to go from Anchorage to
Glennallen with a 36 inch line and beef it up to 48 inches if it
needs to go to Fairbanks.
7:08:35 PM
JEREMY O'NEIL, representing himself, Valdez, Alaska, opposed HB
4. He said he is a third generation Alaskan and one of the
toughest lessons he has to teach his children is about making
short-sighted decisions that ultimately result in disappointment
rather than delaying gratification for something that you really
want. HB 4 is a short-sighted diversion: thinking that an $8
billion line shouldered by some citizens of the state will
influence the cost of energy or enhance revenues to the state
needs to be recalculated using some simple arithmetic. The
natural resources of the state should be used for everyone's
benefit and if the goal ultimately is to build the large volume
pipeline, we shouldn't be making choices that jeopardize that.
7:11:51 PM
CHAIR GIESSEL thanked everyone for their comments and closed
public testimony. She adjourned the Senate Resources Committee
meeting at 7:12 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4 ASAP Proj-Common and Contract Carriers Rev 4 2013.04.03.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Division of Legislative Audit- ANGDA Summary.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Leg Legal on AGIA Feb 2013.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Leg Legal-Judicial Review.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Written Testimony TerryHinman 2013.04.03.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Opp Letter JeanniePinkelman 2013.04.03.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| HB 4 Supp Letter AvesThompson 2013.04.03.pdf |
SRES 4/3/2013 3:30:00 PM |
HB 4 |
| BLM Cleanup Issues AG MichaelGeraghty 2013.04.03.pdf |
SRES 4/3/2013 3:30:00 PM |