Legislature(2003 - 2004)
05/14/2003 09:20 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
May 14, 2003
9:20 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
Representative David Guttenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 277
"An Act relating to the powers of the Regulatory Commission of
Alaska in regard to intrastate pipeline transportation services
and pipeline facilities, to the rate of interest for funds to be
paid by pipeline shippers or carriers at the end of a suspension
of tariff filing, and to the prospective application of
increased standards on regulated pipeline utilities; allowing
the commission to accept rates set in conformity with a
settlement agreement between the state and one or more pipeline
carriers and to enforce the terms of a settlement agreement in
regard to intrastate rates; and providing for an effective
date."
- MOVED CSHB 277(RES) OUT OF COMMITTEE
HOUSE BILL NO. 227
"An Act increasing the jurisdictional limit for small claims and
for magistrates from $7,500 to $10,000; increasing the
jurisdictional limit of district courts in certain civil cases
from $50,000 to $75,000; and amending Rule 11(a)(4), Alaska
District Court Rules of Civil Procedure, relating to service of
process for small claims."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 277
SHORT TITLE:PIPELINE UTILITIES REGULATION
SPONSOR(S): REPRESENTATIVE(S)DAHLSTROM
Jrn-Date Jrn-Page Action
04/17/03 1026 (H) READ THE FIRST TIME -
REFERRALS
04/17/03 1026 (H) O&G, L&C
04/22/03 (H) O&G AT 3:15 PM CAPITOL 124
04/22/03 (H) -- Meeting Canceled --
04/23/03 1081 (H) COSPONSOR(S): KOHRING
04/24/03 1108 (H) RES REFERRAL ADDED AFTER O&G
04/24/03 (H) O&G AT 3:15 PM CAPITOL 124
04/24/03 (H) Heard & Held
04/24/03 (H) MINUTE(O&G)
04/29/03 (H) O&G AT 3:15 PM CAPITOL 124
04/29/03 (H) Scheduled But Not Heard
05/01/03 (H) O&G AT 3:15 PM CAPITOL 124
05/01/03 (H) Moved CSHB 277(O&G) Out of
Committee
05/01/03 (H) MINUTE(O&G)
05/02/03 (H) L&C AT 3:15 PM CAPITOL 17
05/02/03 (H) Scheduled But Not Heard
<Meeting Postponed to 4:00
PM>
05/02/03 (H) RES AT 1:00 PM CAPITOL 124
05/02/03 (H) <Pending Referral> -- Meeting
Canceled --
05/05/03 1316 (H) O&G RPT CS(O&G) NT 1DP 6NR
05/05/03 1316 (H) DP: KOHRING; NR: HOLM,
ROKEBERG, FATE,
05/05/03 1316 (H) KERTTULA, CRAWFORD, MCGUIRE
05/05/03 1317 (H) FN(S): FORTHCOMING
05/06/03 1372 (H) FN1: ZERO(REV) RECEIVED
05/06/03 1372 (H) FN2: ZERO(DNR) RECEIVED
05/07/03 (H) RES AT 8:00 AM CAPITOL 124
05/07/03 (H) Bill Postponed 1:30 PM --
Recessed to a call of the
Chair --
05/07/03 (H) RES AT 1:30 PM CAPITOL 124
05/07/03 (H) Heard & Held -- Recessed to
Friday 8 AM --
05/07/03 (H) MINUTE(RES)
05/09/03 (H) L&C AT 3:15 PM CAPITOL 17
05/09/03 (H) Scheduled But Not Heard
05/09/03 (H) RES AT 8:00 AM CAPITOL 124
05/09/03 (H) Heard & Held -- Recessed to
1:00 pm --
05/09/03 (H) MINUTE(RES)
05/12/03 (H) L&C AT 3:15 PM CAPITOL 17
05/12/03 (H) Scheduled But Not Heard
05/12/03 (H) RES AT 1:00 PM CAPITOL 124
05/12/03 (H) Moved CSHB 277(RES) Out of
Committee Recessed to after
TRA Mtg Approx 7 PM
05/12/03 (H) MINUTE(RES)
05/13/03 1589 (H) RES RPT CS(RES) NT 3DP 1DNP
2NR
05/13/03 1589 (H) DP: LYNN, HEINZE, FATE;
05/13/03 1589 (H) DNP: GUTTENBERG; NR: MASEK,
WOLF
05/13/03 1590 (H) FN1: ZERO(REV)
05/13/03 1590 (H) FN2: ZERO(DNR)
05/13/03 1590 (H) REFERRED TO LABOR & COMMERCE
05/13/03 1617 (H) CORRECTED CS(RES) NT RECEIVED
05/13/03 (H) L&C AT 3:30 PM CAPITOL 17
05/13/03 (H) Heard & Held -- Meeting
Postponed to 4:00 PM --
05/13/03 (H) MINUTE(L&C)
05/14/03 1661 (H) FIN REFERRAL ADDED AFTER L&C
05/14/03 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REX SHATTUCK, Staff
to Representative Nancy Dahlstrom
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed the changes incorporated in
Version Q of CSHB 277(RES).
MARK HANLEY, Public Affairs Manager, Alaska
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Related Anadarko's opposition to HB 277.
ROBIN O. BRENA, Attorney at Law
Brena, Bell & Clarkson, PC
Anchorage, Alaska
POSITION STATEMENT: As the attorney representing Tesoro Alaska
Company and Anadarko Petroleum Corporation, expressed concerns
with HB 277.
AL BOLEA, President
BP Pipelines
POSITION STATEMENT: Encouraged the committee to support passage
of HB 277 [Version Q].
ACTION NARRATIVE
TAPE 03-53, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 9:20 p.m. Representatives
Anderson, Lynn, Dahlstrom, Gatto, Rokeberg, Crawford, and
Guttenberg were present at the call to order.
HB 277-PIPELINE UTILITIES REGULATION
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 277, "An Act relating to the powers of the
Regulatory Commission of Alaska in regard to intrastate pipeline
transportation services and pipeline facilities, to the rate of
interest for funds to be paid by pipeline shippers or carriers
at the end of a suspension of tariff filing, and to the
prospective application of increased standards on regulated
pipeline utilities; allowing the commission to accept rates set
in conformity with a settlement agreement between the state and
one or more pipeline carriers and to enforce the terms of a
settlement agreement in regard to intrastate rates; and
providing for an effective date."
CHAIR ANDERSON announced that before the committee is CSHB
277(RES), Version 23-LS0980\Q. He explained that Version Q has
minimal changes from [CSHB 277(RES) Version 23-LS0980\I].
REPRESENTATIVE ROKEBERG noted that former Representative Mark
Hanley caught the error in [Version I]. He also noted that the
legislation was properly transmitted from the House Resources
Standing Committee, read into the journal, and is properly
before the House Labor and Commerce Standing Committee.
Number 0185
REX SHATTUCK, Staff to Representative Nancy Dahlstrom, Alaska
State Legislature, highlighted the changes encompassed in
Version Q. The language "services and facilities" was
inadvertently left out of Version I, but is now included in
Version Q on page 3, line 11. He pointed out that on page 5,
line 1, of Version I the language referred to "interstate
rates", which was changed to "intrastate rates" on page 4, line
31, of Version Q. On page 5, line 12, of Version Q the language
was changed so that it reads "reduction in transportation
services" rather than "reduction in services". On page 6, line
11, of Version Q the language was changed to refer to "such
payment" rather that "the [SUCH] payment". He continued by
pointing out that on page 6, line 29, of Version Q, the language
now refers to "earliest" rather than "earlier", which was used
in Version I. [Although Mr. Shattuck noted that the language on
page 10, line 28, of Version I was changed in Version Q to read
"the best interests of the state", the language in Version I
already read that way.]
Number 0599
REPRESENTATIVE DAHLSTROM, speaking as the sponsor of HB 277,
paraphrased from her sectional analysis. The sectional analysis
reads as follows [original punctuation provided]:
Section 1. This does not represent any change in
existing practice; DNR [Department of Natural
Resources] issues and enforces the leases now. But
the section would clarify statutes in this regard.
This section would make the commissioner of DNR the
lead agency to investigate the performance of
obligations under and compliance with state leases
issue[d] by DNR, including dismantlement, removal, and
restoration (DR&R) obligations under state right of
way leases.
Section 2. Specifies that the commission regulates
pipelines and pipeline carriers in the state to the
extent applicable to intrastate transportation. This
language is consistent with current statutory intent,
and is an improvement over the bill's original
language. Something the committee process has worked
to improve on. Additionally, this section would
remove from the commission's jurisdiction any
oversight of the performance of a pipeline carrier's
obligation under state leases. The lease is a
contract between the state and the carriers for the
use of state land and the state would prefer not to
have the commission interpreting or enforcing its
contracts. The leases do not contain the regulation
of the pipelines. The commission retains that
jurisdiction under its authority to issue certificates
of public convenience and necessity and its other
statutes and regulations.
Section 3 would provide expressly that the commission
would not have jurisdiction over DR&R, over the
amounts collected from interstate shippers for DR&R,
but would have jurisdiction over amounts collected
from intrastate shippers for DR&R.
Section 4. This section would again clarify that the
commission has jurisdiction over rates and charges
where the pipeline is engaged in intrastate commerce,
including the intrastate portion of a pipeline that is
also subject to federal jurisdiction. The section
would prohibit the commission from considering
interstate revenues (amounts collected from interstate
shippers) when evaluating intrastate rates.
Similarly, the FERC does not consider intrastate
revenues when it makes clear that the commission can
consider the total costs of operating the pipeline -
both interstate and intrastate - as needed in order to
determine how much of that amount can properly be
included in the intrastate rates.
Section 5 would delete the requirement that a carrier
obtain commission approval for discontinuing use of
all or part of a pipeline, so long as the carrier is
not permanently reducing the capacity or discontinuing
the service. If transportation services [are] being
[discontinued] or capacity is being permanently
reduced, the carrier must seek commission approval.
The change will allow a carrier to make necessary
changes to infrastructure for safety, efficiency or
other reasons, without having to go to the commission,
so long as transportation services are not affected.
Section 6 would replace the existing interest rate of
10.5% for amounts to be refunded with a new interest
rate, which floats with or is tied to the 12th
District, Federal Reserve discount rate in effect in
each year for which refunds are due. (for your info
the present rate is 2.25 percent)
Section 7 would provide clear statutory language for
what rates are affected by a commission order. The
section would provide that an order would not affect
rates that had been charged before the protest,
complaint, or other action that initiated the
proceeding. This change would alert a carrier that
its rates are being challenged and may be subject to
refund, but would not contravene the filed rate
doctrine by allowing an order to reach back [and]
affect earlier rates that had not been protested.
Section 8. This section would codify existing practice
with regard to the attorney general's role over tariff
matters. It would provide that among the duties of
the Attorney General is the duty to consult with
affected agencies regarding pipeline tariff matters,
and to participate in tariff proceedings on behalf of
the state. Current RCA statutes make clear that the
attorney general represents the state in tariff
matters before the FERC, but it is not stated
expressly with regard to proceedings before the RCA.
This section would clarify this role, similar to the
clarity [provided] in Section 1 with regard to [the]
DNR commissioner's authority over state leases and
DR&R, and in other sections dealing with the RCA's
authority over regulating pipelines and pipeline
carriers.
Section 9. This section would make the Act applicable
to matters pending before the commissions on or after
the effective date of the Act. The Act would not
apply to the commission's order 151, which is pending
before the superior court.
Section 10. This section provides for an immediate
effective date.
Number 0980
MARK HANLEY, Public Affairs Manager, Alaska; Anadarko Petroleum
Corporation (Anadarko), informed the committee that in December
of last year the RCA made a ruling that transportation rates for
intrastate transportation of oil was significantly too high, 57-
70 percent too high which is $1.00-$1.50 per barrel too high.
Therefore, Anadarko is concerned because if it is paying too
much to ship its oil down the pipeline, it creates a significant
impact on the economics regarding whether the company can drill
for more oil. Furthermore, the aforementioned RCA ruling
impacts the state because for every dollar in excess
transportation costs for the oil to go down the pipeline, the
state loses about $.25. He explained that pipeline carriers who
are also producers can ship the profits either between the
exploration side and the carrier side. If the profits go to the
carrier side, the state as well as companies who don't have an
ownership interest in the pipeline, such as Anadarko, lose
money. Then this legislation was introduced.
MR. HANLEY related that Anadarko has a number of concerns with
HB 277. Anadarko is concerned with regard to how the rates will
be impacted because it views this legislation as reducing the
authority of the RCA to adequately evaluate the rates,
particularly with regard to the DR&R issues. Mr. Hanley said he
would echo the points Mr. Harbour, Chairman of the RCA, made
last night. Anything that removes the ability to assure that
the rates are reasonable is of concern to Anadarko. Mr. Hanley
noted that access to the pipeline is also of concern to
Anadarko. He pointed out that the RCA has the ability to
require interconnects into the pipeline as well as expansion of
the pipeline. However, Section 4, which limits the RCA's
[authority] to intrastate rates only, limits the RCA's ability
to deal with interconnect policies and access issues for
interstate issues. Anadarko doesn't want to have to go before
the RCA and prove that its oil is only going intrastate so that
the RCA can regulate some of the access issues that it can
currently regulate.
MR. HANLEY turned to the issue of the retroactivity of this
legislation. Although the retroactivity doesn't directly affect
Anadarko, Anadarko is concerned with the [possibility] of people
coming to the legislature to try and change the law
retroactively in order to influence cases. Mr. Hanley related
his belief that the aforementioned is exactly what is going on
with this legislation. Sections 1-5 and Section 7-8 are
intended to influence [pending] cases. Although he acknowledged
that some have said that [coming to the legislature and
requesting legislation to retroactively influence pending cases]
is the current practice, he suggested that if that is the case
the legislature should review each case and make a policy call.
He pointed out that investment decisions have been made based on
the law at the time.
MR. HANLEY reiterated that he would highlight some of Mr.
Harbour's concerns and comments. Specifically, Anadarko
believes there are conflicts in a number of sections, which
leads to uncertainty and more litigation. Mr. Hanley summarized
by specifying that Anadarko believes that this legislation
creates more uncertainty, carries the risk of creating higher
rates, and creates concerns over access issues for independents
that are pipeline owners. Moreover, Anadarko is concerned with
the retroactive aspects of this legislation. He concluded by
pointing out that each section of the legislation, save Section
1, creates concern for Anadarko.
Number 1284
MR. HANLEY, in response to Representative Rokeberg, specified
that Section 4 deals with the limitation on interconnectivity
and access. He noted that an attorney working for Anadarko and
Tesoro Alaska Company (Tesoro) is working on this issue and can
help with issues beyond his expertise.
REPRESENTATIVE ROKEBERG turned to Section 9 and said that after
a quick review of the language, it doesn't seem to include
retroactive type language.
MR. HANLEY clarified that Sections 1-5 and Sections 7-8 apply to
matters pending before the RCA on the effective date of this
legislation. Therefore, this legislation will apply the changes
in law it encompasses to any of the matters pending when the
legislation passes and thus is effectively a retroactive change
of the law. In further response to Representative Rokeberg, Mr.
Hanley explained that Section 9(c)(1) is RCA Order 151, which
has been decided and is on appeal.
Number 1394
REPRESENTATIVE ROKEBERG directed attention to the DR&R language
and inquired as to how it would impact Anadarko's access to the
line. He also inquired as to the impact on tariffs.
MR. HANLEY specified that DR&R doesn't have to do with access,
rather it has to do with whether excessive tariffs are able to
be refunded. The access issue is found in Section 4 and has to
do with the deletion of the language "exclusively" in the phrase
"exclusively subject to federal jurisdiction". Furthermore, the
access issue is related to the RCA's inability to regulate a
pipeline on permit and certificate of convenience issues when
there is some federal regulation involved.
Number 1449
REPRESENTATIVE DAHLSTROM related that conversations with
Legislative Legal and Research Services believes that the
language of the legislation isn't retrospective.
REPRESENTATIVE ROKEBERG returned to Mr. Hanley's earlier
explanation that the retroactivity of the legislation is in its
ability to impact dockets that are currently underway.
Therefore, this legislation, although not specifically
retrospective, is the same as being retrospective.
REPRESENTATIVE GATTO asked if Mr. Hanley was understating
Anadarko's position by saying it is concerned.
MR. HANLEY clarified that Anadarko is opposed to HB 277 because
it isn't good for the company. He noted that there are a few
sections with which the company has no problem.
REPRESENTATIVE GATTO asked if Anadarko feels the DR&R tariff is
excessive.
MR. HANLEY explained that the concern is whether excessive
charges for DR&R can be refunded. In further response to
Representative Gatto, Mr. Hanley related his understanding that
agencies such as the RCA and FERC choose what [they think] is a
legitimate amount for DR&R to include in the rates. However,
once the pipeline is removed and the DR&R is performed, there is
the possibility that money may be left. Therefore, the question
becomes how that money can be recovered. He recalled that Mr.
Harbour contends that the language of this legislation is such
that it may require the state to charge more on intrastate
rates. When the chairman of the RCA relates that this
legislation may cause it to raise rates, it is of concern.
Number 1610
REPRESENTATIVE GATTO posed a situation in which the pipeline is
closed and DR&R is two-thirds complete, and [there is no more
money to complete DR&R]. He asked if one would turn to the
producers [for the remainder of the funds for completion.]
MR. HANLEY deferred to others with a better understanding.
REPRESENTATIVE GUTTENBERG turned to the concern of connectivity.
He pointed out that the state is actively pursuing both Arctic
National Wildlife Refuge (ANWR) development and the National
Petroleum Reserve - Alaska (NPR-A). According to those in the
industry, the future lays in independents. Therefore, he
inquired as to how the inter- and intrastate conflict on rate
structure is going to impact being able to connect with a new
oil field.
MR. HANLEY again deferred to others with a better understanding.
Number 1712
ROBIN O. BRENA, Attorney at Law, Brena, Bell & Clarkson, PC,
informed the committee that he had been retained by both Tesoro
and Anadarko to assist them in reviewing HB 277. Mr. Brena said
that it has been difficult to obtain reasoned economic
regulation of the Trans-Alaska Pipeline System (TAPS); there
hasn't been a just and reasonable rate set on TAPS in 25 years.
[Tesoro and Anadarko] filed a protest because they viewed the
rates as too high. In fact, under the rates five years prior to
the filing, the TAPS owners had collected 132-134 percent return
on the investment each year for those five years. Under
[Tesoro's and Anadarko's] protest, the RCA [required that] the
full-line rates be lowered. The RCA held that those rates were
70 percent higher than standard ratemaking procedures.
Therefore, for the first time in 25 years, there was the ability
to obtain a just and reasonable rate on TAPS. He recalled when
he started in this business 20 years ago, the TAPS owners'
position was that the state had no authority to set a rate
different from the federal rate because it would violate the
Interstate Commerce Act. Mr. Brena said, "So, there has been a
wholesale assault on the jurisdiction of the commission, for
over 20 years, trying to avoid reasoned economic regulation."
Mr. Brena viewed HB 277 as the latest way to continue that
assault. He informed the committee that Tesoro spent [in one
year] $15 million when it tried to set a just and reasonable
rate. Now, Tesoro is forced to again win the rate case before
the legislature because this legislation is designed to
undermine the principles that had finally been established on
TAPS. Mr. Brena emphasized the importance of fair
transportation rates on TAPS because most of the wealth of
Alaska is going to flow through a monopoly transportation
corridor. "What the rates are and whether they're fair and who
has access to those is absolutely critical to resource
development in this state. And it's critical for the
independent producers who do not own that infrastructure that
they must rely on. It's critical for the state to be sure they
get the property, royalty, and severance taxes that they
deserve," he pointed out. Mr. Brena related that TAPS is
overcharging Tesoro over $10 million a year every year for the
use of its infrastructure.
MR. BRENA noted his agreement with Mr. Harbour's testimony.
Within the RCA, there are several attorneys who have handled
hundreds of rate cases. Furthermore, the RCA is an independent
third-party. Therefore, Mr. Brena stressed the need to really
listen to Mr. Harbour's comments that [this legislation]
undermines his ability to regulate as specified by the
legislature. Mr. Brena acknowledged that he may be viewed as a
biased witness, however Mr. Harbour is not. Everyone,
[excluding the RCA but] including the state has a stake in this.
In fact, the state opposed Tesoro's rights to obtain fair rates
on TAPS.
Number 1948
MR. BRENA turned to applicability and informed the committee
that there are 40 open dockets. No one has reviewed the impact
this legislation's new rules and regulations would have on those
dockets. He acknowledged that the legislation does include an
exception for RCA Order 151. However, RCA Order 151 involves
the smallest sum of money for any of the TAPS dockets. Some of
the pending cases go back to 1986, he noted. The TAPS rates are
temporary and refundable from 1986 to date, he related.
Therefore, Mr. Brena said this legislation uses fancy language
that merely attempts to foreclose on the ratepayer's right to
recover tens of millions of dollars in overcharges.
MR. BRENA said if HB 277, as amended, [Version Q] passes, the
TAPS carriers that overcollected the rates will be able to keep
those overcollections. In Section 7, retroactive ratemaking is
redefined as a concept and it's redefined inconsistently with
law. Furthermore, that new definition is applied to cases all
the way back to 1986. Mr. Brena posed a situation in which the
rule is that one would have 60 days to file a protest, but 10
years later the legislature passes legislation specifying that
protests must be filed in 30 days and applies it retroactively.
In such a situation, cases in which entities filed a protest
within 60 days [but more than 30 days] couldn't be heard. The
aforementioned is what is being attempted in Section 7 and
Section 9 attempts to foreclose the ratepayers' rights. This
type of action shouldn't be sanctioned by the legislature, he
charged. Mr. Brena recalled that Mr. Harbour had suggested
inserting the language "final" before "affected rates" because
the section could be read such that one wouldn't be able to
obtain a refund from a currently temporary and refundable rate.
Mr. Brena explained that in the RCA's practice, a rate increase
is filed and the rate before filing the rate revision is the
final rate. After the filing, the RCA can either allow the rate
to go into effect because there is no cause to investigate. In
this case, the rate filed becomes the final rate. On the other
hand, the RCA could suspend it and start an investigation, which
would mean the rate is a temporary rate subject to refund.
However, the language in Section 7 has nothing to do with the
language that identifies which rate is which because it merely
refers to "rates in effect". The TAPS owners use the "rates in
effect" language on purpose. This language takes the litigation
position that temporary and refundable rates are rates in
effect, and therefore aren't refundable. The aforementioned is
an example of the gamesmanship in this legislation, and this
type of drafting gamesmanship shouldn't be tolerated, he said.
Number 2145
MR. BRENA turned to the applicability provision and AS
42.06.245, which has been rewritten. Currently, if the federal
government doesn't have the authority, the state government
does. In fact, the last sentence of AS 42.06.245 specifies that
"nothing limits the powers of the commission set out in this
chapter except to the extent they are preempted by federal law."
Therefore, there is no regulatory gap. He questioned why the
state would want to delete that sentence. He further questioned
why the state would want to give away its authority over a
monopoly common carrier, over which [the state's] entire wealth
has to move. With regard to those who say there is no
regulatory gap, Mr. Brena questioned why the language specifying
there is no regulatory gap would be deleted if there is no
regulatory gap.
MR. BRENA addressed DR&R. He said that [this legislation] takes
away the RCA's authority to ensure that the mess [DR&R] is
cleaned up. With regard to state lands, DNR is available and
right-of-ways have been negotiated. Furthermore, the U.S.
Department of Interior did the same with federal lands. With
regard to Native and private lands, Mr. Brena inquired as to who
would cleanup the mess. The entity that has economic regulatory
authority over the common carrier should be able to expect that
the mess is cleaned up. However, the real DR&R issue is with
regard to overcollections. To date, on TAPS there have been
overcollections in the amount of $10 billion. He informed the
committee that the state just filed a brief with the RCA
specifying that the law suggests that overcollections of DR&R
are refundable. Mr. Brena explained that first attorneys define
the legal scope of the DR&R responsibility and then engineers
describe how much it will cost to perform the specified DR&R.
After the aforementioned is determined, an even amount is
collected from all ratepayers so that when the line goes out of
service there is enough money to [pay for the DR&R]. Currently,
TAPS carriers have overcollected $10 billion and by 2011 the
TAPS carriers will have overcollected $30 billion. He said he
agreed with the state that those overcollections are ultimately
refundable; however, he questioned how the state will obtain its
money. Mr. Brena stressed the need to maintain the authority to
the degree its not preempted by federal law.
Number 2310
REPRESENTATIVE CRAWFORD related his belief that overcollections
should be addressed.
MR. BRENA pointed out that Section 3 of the current legislation
restricts the scope of the RCA's authority only to intrastate
DR&R, which is only 4 percent of the money. However, [the RCA]
is responsible for 100 percent of the job. Under the federal
regime, there is no way to obtain the overcollections. The
state is taking away its own regulatory authority to ensure that
it gets refunds and perhaps additional dollars in royalties and
severance taxes. Mr. Brena agreed with Representative Crawford
in that the issue of DR&R overcollections should be addressed.
Mr. Brena related his belief that DR&R overcollections should be
addressed such that to the degree not preempted by federal law,
the state should exercise maximum authority in this area for its
own financial interest as well as for the protection of
ratepayers and landowners.
TAPE 03-53, SIDE B
REPRESENTATIVE GUTTENBERG posed a situation in the future in
which the pipeline is dismantled, DR&R is done, and an
overpayment remains. He inquired as to how that overpayment
would be handled as far as a refund would go.
MR. BRENA posed a situation in which what was originally
contemplated for TAPS comes to fruition. Therefore, TAPS would
go out of service in 2011 with DR&R funds in the amount of $10
billion. Then DR&R would commence for four years after TAPS
ends service, and therefore in 2014 $10 billion would have been
spent and the [DR&R] would be complete. However, $30 billion in
collections and earnings on collections would remain.
Therefore, the question becomes how those overcollections will
be obtained. The commission held under this existing DR&R
docket, which will be impacted by the retroactivity provisions
of HB 277, that no federal law, federal regulation, or federal
order exists addressing post collection treatment of interstate
DR&R allowance on TAPS. Under the current Act, the state has
authority to the degree not preempted by federal law.
Therefore, the state could fill that void [left by the federal
government] and require that those funds be escrowed or
guaranteed by parent companies in order to ensure that the
refunds are paid. Without the [RCA's] authority and order, Mr.
Brena said that he didn't know any way those refunds would be
repaid because the FERC, even if it did have authority, would
only have authority over a common carrier that has been out of
service for four years and has no reserves or assets.
MR. BRENA, in response to Representative Guttenberg, explained
the federal government [through FERC] sets rates. With regard
to post collection treatment of collections, there is no federal
law or order with regard to how those are treated. The federal
government has no authority over facilities, certification,
access, or abandonment issues. The RCA has held that the FERC
may not have authority with regard to interstate collections,
that is post collection treatment of interstate rates. Although
the RCA could be wrong, he questioned why one would take the
risk when the existing law specifies that if the federal
government doesn't have the authority, then the state does.
However, this legislation specifies that the RCA doesn't have
the authority over interstate refunds. He reiterated that this
would mean that the RCA would be eliminated as an instrument of
collection of $7.5 billion in royalty and severance taxes. "Why
do that to yourselves," he asked.
Number 2239
REPRESENTATIVE GUTTENBERG returned to the matter of access and
developing other oil fields that would need access to TAPS. He
inquired as to how [this legislation] would impact independents
and other people trying to gain access to TAPS.
MR. BRENA explained that if the authority of the RCA is limited
to intrastate matters only, then the state has forfeited the
authority necessary to guarantee access for interstate purposes.
Currently, the FERC has no authority to give a connection,
require additional capacity, or to [require] a certificate of
abandonment. The FERC doesn't regulate facilities, and
therefore specifying that the RCA only has authority over
intrastate matters only highlights the question of how the
independents can move their oil out of the state. More
importantly, if all regulation was eliminated and the incentives
of the monopoly carrier were relied on, then the question
becomes under what terms and conditions would access be
afforded. Therefore, there would be no certainties to companies
such as Anadarko. Mr. Brena highlighted that 90 percent of
Alaska's oil goes out of the state and the most important thing
for the state is to not give up regulatory control. Mr. Brena
informed the committee that the drafter, Professor
Witherspoon(ph), of the [original] Act said, "We are going to
regulate interstate activities to the degree they're not covered
by federal law because we have important state interest in the
development of natural resources." The aforementioned is what
HB 277 will gut.
Number 2128
AL BOLEA, President, BP Pipelines Alaska, informed the committee
that he is responsible for all BP's interests in Alaska's common
carrier pipelines and for all the ships used to move all of BP's
crude oil to the West Coast. Mr. Bolea began by pointing out
that Alaska's future does depend upon oil and gas investments in
the state. There are two types of investments that the
legislature and the administration should consider when
anticipating policy. There is the investment in exploration,
appraisal, and development activities as well as the investment
in infrastructure. Because Alaska is so far away from the
dominant market for oil, infrastructure such as roads,
pipelines, and ships are essential. Mr. Bolea explained that a
healthy infrastructure must be maintained because it is the
prerequisite and catalyst for growth. Investors need to have
confidence and certainty in order to make investments. This is
extremely important for pipelines because they are long-lived,
which means that the investments and the returns are recovered
in very small increments over a long period of time. Pipelines
recover costs over the full life of the pipeline, while typical
oil and gas investments recover costs and gather investments in
a much shorter time. Mr. Bolea pointed out that TAPS has been
in operation for 25 years and from the years he could track the
tariffs have been under some form of litigation for at least 15
of those 25 years. Therefore, the situation hardly provides
confidence and certainty for investors or anyone else. The
Pipeline Act is the source of the uncertainty when it comes to
pipeline investments.
MR. BOLEA turned to the current draft of HB 277 [Version Q],
which he said fixes quite a few of the deficiencies, although
not all. The legislation certainly helps BP Pipelines as a
major investor. Therefore, BP Pipelines is a bit more
comfortable with future investments in TAPS and other pipelines
in this state. Mr. Bolea concluded by encouraging the committee
to support passage of HB 277 [Version Q].
Number 1945
REPRESENTATIVE CRAWFORD inquired as to Mr. Bolea's opinion
regarding whether this legislation would impact the 40 open
dockets.
MR. BOLEA related his understanding that this legislation would
deal with those issues on appeal or remanded on appeal. The
open dockets would be treated under the conditions of this
legislation, which Mr. Bolea said he believes is fair.
REPRESENTATIVE GUTTENBERG pointed out that Mr. Bolea makes it
sound as if TAPS hasn't paid for itself and not doing well.
However, that doesn't bear out from what he has heard over the
years. Representative Guttenberg noted that he, too, has
concern with being comfortable with future investments as well
as other developers having access to the line. He requested
that Mr. Bolea address the aforementioned.
MR. BOLEA highlighted that the recovery of costs and the return
the investor's of TAPS receive is a matter of public record.
There is no dispute with regard to the structure and way in
which TAPS has recovered its costs. He explained that back in
1986 the state wanted the TAPS owners to recover their costs
upfront, and effectively defer obtaining it slowly over the life
TAPS. Under the structure of the TAPS [tariff] settlement
methodology (TSM), the TAPS owners haven't recovered all of
their costs or the return the state expected. "That's public
information. There's just no debate about that," he stated.
Furthermore, RCA Order 151 disrupts the late-life return for the
interstate piece of TAPS' return. The TAPS owners will argue
their position on that in the courts. He indicated that RCA
Order 151 creates uncertainty about the future, and therefore he
questioned how TAPS owners can feel confident about investing
more money in TAPS when there is no certainty with regard to the
recovery of costs or return on investment.
CHAIR ANDERSON, upon determining no one else wished to testify,
closed public testimony.
Number 1730
REPRESENTATIVE CRAWFORD moved that the committee adopt Amendment
1, which reads as follows:
Page 4, Line 8-13; delete all language and replace
with:
*Sec. 3. AS 42.06.230 is amended by adding a new
subsection to read:
c) Notwithstanding any other provision of this
chapter and to the extent not preempted by federal
law, the commission has jurisdiction over all amounts
collected and earned by a pipeline carrier for
performing dismantlement, removal, and restoration.
In the exercise of its jurisdiction, the commission
shall provide the amounts collected and earned are
available and sufficient to satisfy the legal
obligations of the pipeline carrier to perform
dismantlement, removal, and restoration and shall
provide that any excessive collections and earnings
are available for refund. In determining the legal
obligations of the pipeline carrier to perform
dismantlement, removal, and restoration, the
commission shall look to the in rights-of-way
agreements and leases between the pipeline carrier and
the affected land owners and to the environmental
regulations of the appropriate federal and state
agencies.
CHAIR ANDERSON objected for purposes of discussion.
REPRESENTATIVE CRAWFORD related his belief that there should be
a free and independent RCA because he believes that's the only
way the state can be protected with regard to DR&R. He reminded
the committee of the overcollections of DR&R, which continue to
accumulate earnings. Amendment 1 would deal with the
accumulated earnings and how to refund it. Furthermore,
Amendment 1 assures that the funds will be available to perform
DR&R in Alaska under federal law when it is adequate and state
law when federal law isn't adequate. The amendment also ensures
that there are sufficient funds available to perform DR&R on
Native and private lands. The amendment also protects
ratepayers and the state's interest in refunds due to
overcollections of DR&R. This amendment separates the RCA's
role from that of the landowner and makes clear that the RCA is
economically regulating the pipeline carrier while the landowner
is defining the legal duty and scope of DR&R on its lands.
REPRESENTATIVE ROKEBERG remarked that there could be some merit
in Amendment 1, but, at this time, he said he would defer to the
judgment of the sponsor of this legislation. He noted that HB
277 has another committee of referral.
A roll call vote was taken. Representatives Guttenberg and
Crawford voted in favor of adopting Amendment 1.
Representatives Dahlstrom, Gatto, Rokeberg, Lynn, and Anderson
voted against it. Therefore, Amendment 1 failed by a vote of 2-
5.
REPRESENTATIVE GUTTENBERG explained that Amendment 2 basically
deletes Section 4. He related his understanding that the
federal government, through FERC, has certain authorities and
the state government has everything else.
Number 1482
REPRESENTATIVE GUTTENBERG moved that the committee adopt
Amendment 2, which reads as follows:
Page 4, line 14 to page 5, line 2: delete all
language.
Renumber sections accordingly.
CHAIR ANDERSON objected for purposes of discussion.
REPRESENTATIVE GUTTENBERG explained that Amendment 2 is
consistent with the comments of the Chairman of the RCA, Mr.
Harbour. This amendment would mean that the state, through the
RCA, would have the regulatory authority to regulate to the
degree not preempted by federal law. The passage of HB 277 [as
is] would mean that a lot of authority would be left hanging.
A roll call vote was taken. Representatives Guttenberg and
Crawford voted in favor of the adoption of Amendment 2.
Representatives Lynn, Dahlstrom, Gatto, Rokeberg, and Anderson
voted against it. Therefore, Amendment 2 failed by a vote of 2-
5.
Number 1350
REPRESENTATIVE CRAWFORD moved that the committee adopt the
following Conceptual Amendment 3:
Page 6, line 26, after "affect"
Insert "final"
REPRESENTATIVE DAHLSTROM said that she couldn't accept
Conceptual Amendment 3 as a friendly amendment.
A roll call vote was taken. Representatives Guttenberg and
Crawford voted in favor of adopting Conceptual Amendment 3.
Representatives Lynn, Dahlstrom, Gatto, Rokeberg, and Anderson
voted against it. Therefore, Conceptual Amendment 3 failed by a
vote of 2-5.
Number 1241
REPRESENTATIVE GUTTENBERG remarked that in many ways this
legislation is critical to the future of oil development in the
North Slope. However, there is no understanding of all the
implications that would result from the passage of this
legislation. For example, there are no answers with regard to
how [funds for] DR&R are accounted for or where they are. There
hasn't been the time or the structural understanding to
understand this legislation. "You're talking billions of
bucks," he emphasized. Representative Guttenberg posed a
situation in which Congress passes ANWR and asked who would have
access to the state. Furthermore, the independents have
indicated that the uncertainty created by this legislation will
cause them not to explore. However, Governor Murkowski has
talked about economic development through the pipeline.
Representative Guttenberg said he didn't believe this
legislation provides any fiscal certainty. Representative
Guttenberg acknowledged that he could be wrong, but pointed out
that the other side could be wrong as well and either way, he
said he didn't want to abdicate responsibility.
REPRESENTATIVE GUTTENBERG informed the committee that he worked
in the oil fields for 25 years, and therefore he knows what it's
all about. Furthermore, he knows what the pipeline means as far
as jobs, families, and health and welfare programs.
Representative Guttenberg said, "Is the state spending money to
lobby ANWR or to push for NPR-A when nobody's going to come in
and develop it, doesn't make any sense to me at all."
Representative Guttenberg expressed the need to understand this
legislation.
Number 1032
REPRESENTATIVE LYNN noted that he was concerned about the
economic development of the state. He expressed the need to
ensure that the independents can make a profit like everyone
else. How well the state facilitates economic development will
[be seen] in how much funding is available for education, the
longevity bonus, and health programs. Although HB 277 isn't
perfect, Representative Lynn related his belief that this
legislation offers the best chance for economic development.
CHAIR ANDERSON remarked that it's difficult for him not to take
Mr. Hanley's testimony to heart. However, if this legislation
isn't moved to the House Finance Committee, the legislation
dies. Chair Anderson acknowledged that the House Finance
Committee has gutted other legislation, but he didn't believe
that will be the case with HB 277.
Number 0836
REPRESENTATIVE LYNN moved to report CSHB 277(RES), Version 23-
LS0980\Q, out of committee with individual recommendations and
the accompanying fiscal notes.
REPRESENTATIVE GUTTENBERG objected.
A roll call vote was taken. Representatives Lynn, Dahlstrom,
Gatto, Rokeberg, and Anderson voted in favor of reporting CSHB
277(RES) out of committee. Representatives Guttenberg and
Crawford voted against it. Therefore, CSHB 277(RES) was
reported out of the House Labor and Commerce Standing Committee
by a vote of 5-2.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
10:46 p.m.
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