Legislature(2007 - 2008)BARNES 124
03/22/2007 03:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 177 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 22, 2007
3:08 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Kurt Olson, Vice Chair
Representative Nancy Dahlstrom
Representative Jay Ramras
Representative Ralph Samuels
Representative Mike Doogan
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Beth Kerttula
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (H) READ THE FIRST TIME - REFERRALS
03/05/07 (H) O&G, RES, FIN
03/06/07 (H) O&G AT 3:00 PM BARNES 124
03/06/07 (H) -- MEETING CANCELED --
03/08/07 (H) O&G AT 3:00 PM BARNES 124
03/08/07 (H) -- MEETING CANCELED --
03/13/07 (H) O&G AT 3:30 PM HOUSE FINANCE 519
03/13/07 (H) Heard & Held
03/13/07 (H) MINUTE(O&G)
03/15/07 (H) O&G AT 3:00 PM BARNES 124
03/15/07 (H) Heard & Held
03/15/07 (H) MINUTE(O&G)
03/19/07 (H) O&G AT 8:30 AM CAPITOL 106
03/19/07 (H) Heard & Held
03/19/07 (H) MINUTE(O&G)
03/20/07 (H) O&G AT 3:00 PM BARNES 124
03/20/07 (H) Heard & Held
03/20/07 (H) MINUTE(O&G)
03/21/07 (H) O&G AT 5:30 PM SENATE FINANCE 532
03/21/07 (H) Heard & Held
03/21/07 (H) MINUTE(O&G)
03/22/07 (H) O&G AT 3:00 PM BARNES 124
WITNESS REGISTER
JOHN KATZ, Deputy Associate General Counsel
Office of General Counsel (OGC)
Office of Energy Products
Federal Energy Regulatory Commission (FERC)
Washington, D. C.
POSITION STATEMENT: Answered questions during the hearing on HB
177.
ROBERT J. CUPINA, Deputy Director
for Policy
Office of Energy Products
Federal Energy Regulatory Commission (FERC)
Washington, D. C.
POSITION STATEMENT: Answered questions during the hearing on HB
177.
ACTION NARRATIVE
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 3:08:28 PM. Representatives Samuels,
Doogan, Kawasaki, Olson, and Kohring were present at the call to
order. Representatives Ramras and Dahlstrom arrived as the
meeting was in progress. Representatives Kerttula and
Guttenberg were also in attendance.
HB 177-NATURAL GAS PIPELINE PROJECT
3:08:59 PM
CHAIR KOHRING announced that the only order of business would be
HOUSE BILL NO. 177, "An Act relating to the Alaska Gasline
Inducement Act; establishing the Alaska Gasline Inducement Act
matching contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments; and
providing for an effective date."
3:11:21 PM
JOHN KATZ, Deputy Associate General Counsel, Office of General
Counsel (OGC), Office of Energy Products, Federal Energy
Regulatory Commission (FERC), informed the committee that he and
Deputy Director Cupina are FERC employees and their opinions
given at this hearing are their own. Mr. Katz said that he and
Deputy Director Cupina read HB 177 and did not find
inconsistencies with the statutes that FERC enforces or with
FERC regulations.
3:12:03 PM
REPRESENTATIVE DOOGAN recalled previous testimony that described
a set of circumstances wherein a licensee is named, the open
season is unsuccessful, yet a FERC certificate is issued. He
asked for confirmation of this possibility.
ROBERT J. CUPINA, Deputy Director for Policy, Office of Energy
Products, Federal Energy Regulatory Commission (FERC), noted
that the FERC certificate could be issued under the
circumstances described by Representative Doogan. The FERC
certificate policy statement does not require a particular level
of contract commitment. In addition, the Alaska Natural Gas
Pipeline Act of 2004 (ANGPA), includes a finding of need.
However, given the scope of this project and the commitment of
resources involved, he said that he thought it is better to have
shipper interest following the open season.
3:14:13 PM
REPRESENTATIVE DOOGAN asked if a successful applicant would have
to demonstrate the ability to finance the project.
3:14:47 PM
DEPUTY DIRECTOR CUPINA responded that a finance exhibit is
included in the FERC application, and financing is part of the
proposal. Most projects are represented by contracts, he added.
3:15:15 PM
REPRESENTATIVE DOOGAN stated that the licensee would be required
to indicate the availability of some financing, but not the
completion of a successful open season.
3:15:32 PM
DEPUTY DIRECTOR CUPINA said yes, but that is not the typical
application for a project of this size.
3:15:46 PM
MR. KATZ noted that an open season without commitments from
shippers may result in raising the possibility that other
entities would file challenges to the application.
3:16:20 PM
REPRESENTATIVE SAMUELS recalled that AGIA allows the successful
applicant five years after the open season to get financing. He
asked whether a FERC certificate can expire.
3:17:13 PM
DEPUTY DIRECTOR CUPINA relayed that a FERC certificate requires
the completion of construction by a certain date. It could be
justified, he said, for a large project to have a later
completion date as part of the agreement.
REPRESENTATIVE SAMUELS asked whether the FERC certificate could
be sold or transferred after it is issued, and whether the
certificate could be owned by the state.
3:18:49 PM
DEPUTY DIRECTOR CUPINA answered that the certificate would have
to be vacated, and new applications from potential successors
would need to be submitted to the commission.
3:19:05 PM
MR. KATZ noted that FERC and Congress do not want to create a
secondary market for certificates. It is possible that the
entity holding the certificate can be bought or sold. He opined
that, although a state has not held a FERC certificate before,
the commission would consider state ownership for the Alaska gas
pipeline project.
3:20:06 PM
REPRESENTATIVE SAMUELS referred again to the transfer of a FERC
certificate. He asked if a certificate is vacated and sold for
a profit by a contract between commercial entities, will FERC
investigate or regulate that transaction.
3:20:56 PM
DEPUTY DIRECTOR CUPINA opined that ANGPA does not contemplate
that the certificate will be sold; therefore, a sale would not
be permitted.
3:21:21 PM
REPRESENTATIVE SAMUELS asked:
If I get to a certificate owned by company "A" after
the certificate is, is owned, and they now partner
with several people but they do not buy, you don't
have a BP Conoco consortium buying Trans-Canada, but
they want to join the consortium that owns the
certificate. ... Without a commercial deal between the
entities, after the certificate has been issued, where
does that go, lead us to?
3:21:49 PM
MR. KATZ responded that most settlements are reached before the
certificate is issued, as in the example of the dispute between
Kern River Gas Transmission Company and Mohave Pipeline Company
in California.
3:22:29 PM
DEPUTY DIRECTOR CUPINA added that the commission will consider
acquisitions of facilities versus acquisitions of securities.
The fact of one company acquiring another company's facilities
would mean that the certificate would be under the jurisdiction
of FERC. However, the acquisition of another company's stock
would not be under the jurisdiction of FERC.
3:23:29 PM
MR. KATZ opined that if the transfer of the certificate was to
the benefit of all parties, the commission might view the
acquisition favorably.
REPRESENTATIVE DOOGAN questioned whether FERC had an established
procedure to review a company that purchases a large percentage
of shares of stock from a FERC certificate holder.
3:24:53 PM
DEPUTY DIRECTOR CUPINA acknowledged that the creation of a joint
venture or a partnership would need to be submitted to FERC for
approval. However, a security acquisition or merger is not a
FERC matter.
3:25:29 PM
REPRESENTATIVE DOOGAN remarked:
The question I am trying to get to is this: If
there's a FERC procedure for dealing with the
situation in which somebody was buying into the
company as opposed to just buying stock. ... I would
imagine that there would be situations in which FERC
would rule that that isn't allowed.
3:26:06 PM
DEPUTY DIRECTOR CUPINA recalled that FERC action was required to
approve the formation of limited partnerships when the
certificate is passed to the limited partners. The new or
combined entities would need to approach the commission with a
request to amend or revise the authorization to reflect the new
arrangement.
3:26:47 PM
REPRESENTATIVE DOOGAN observed that the amendment procedure
would not cause the original licensee to vacate the license.
3:27:31 PM
MR. KATZ advised the committee that recommendations for
hypothetical situations are difficult.
DEPUTY DIRECTOR CUPINA referred to a phrase in ANGPA which
declares that the certificate holder must be able and willing to
fulfill the requirements of the certificate.
3:27:42 PM
CHAIR KOHRING asked about the influence FERC holds over the
regulation of Canadian companies.
3:28:26 PM
DEPUTY DIRECTOR CUPINA responded that a Canadian company that
holds a FERC certificate is subject to FERC jurisdiction.
However, if a Canadian company is dealing with Canadian assets,
FERC would have no jurisdiction.
3:29:01 PM
REPRESENTATIVE GUTTENBERG noted that a pipeline passing through
Canada will be subject to Canadian regulation. How are
transitions for expansion and capacity handled between Canadian
and U. S. agencies.
3:29:41 PM
DEPUTY DIRECTOR CUPINA affirmed that a pipeline originating in
Alaska and traveling through Canada will be a relatively unique
situation. However, similar projects have been completed
successfully. The FERC holds a memorandum of understanding with
the [Canada] National Energy Board (NEB) regarding cross border
projects and a complete exchange of information is guaranteed.
Although the FERC has no authority over the NEB, there is
motivation to work closely together, he said.
3:30:23 PM
MR. KATZ added that the FERC, the NEB, and the [Mexico] Comisin
Reguladora de Energa (CRE) meet tri-annually to address common
issues. He noted that previous pipelines have crossed borders.
3:31:26 PM
REPRESENTATIVE DOOGAN questioned the authority of FERC over the
section of the pipeline located in Alaska.
3:32:25 PM
DEPUTY DIRECTOR CUPINA stated that FERC regulation is required
because the gas in the pipeline is being transported interstate.
3:32:34 PM
REPRESENTATIVE DOOGAN asked:
If, as has been suggested, there would also be on the
Alaskan section of the pipeline, authority for the
Regulatory Commission of Alaska (RCA) to be involved
in these matters, ... do you have any kind of protocol
with the RCA on something like this?
3:32:57 PM
DEPUTY DIRECTOR CUPINA replied that FERC also has a memorandum
of understanding with the RCA, so a relationship has been
established. He added that FERC would have jurisdiction over
the interstate line and the RCA may have jurisdiction over the
[off-take] delivery lines.
3:33:47 PM
REPRESENTATIVE DOOGAN observed that a pipeline could be built
entirely in Alaska with the gas terminating at a liquefied
natural gas (LNG) plant, and asked whether FERC would still
retain authority.
3:34:24 PM
DEPUTY DIRECTOR CUPINA indicted that the gas will primarily be
destined for the Lower 48 and not for foreign export.
3:34:49 PM
MR. KATZ recalled an informal opinion supporting Deputy Director
Cupina's statement.
3:35:08 PM
REPRESENTATIVE DOOGAN remarked:
So, if the gas were going to be liquefied and then
regassified and sold in the United States FERC would
have jurisdiction, if it were strictly for export you
wouldn't....
3:35:26 PM
DEPUTY DIRECTOR CUPINA remarked:
Well, if it, in the first scenario it's going to the
Lower 48, therefore, it's in interstate commerce,
okay, it's FERC jurisdictional. ... FERC also has
jurisdiction over facilities involved in export. ...
If it were an export facility, like it was back in the
'80s and early '90s for Yukon Pacific, there was a
determination at the time, that the line from the
North Slope down to the terminal was not FERC
jurisdictional. But the terminal, of course, was
jurisdictional.
3:36:27 PM
REPRESENTATIVE DOOGAN surmised that FERC would have jurisdiction
over some portion of the project.
3:36:38 PM
DEPUTY DIRECTOR CUPINA pointed out that the U.S. Department of
the Interior conducted an environmental impact study on the
Yukon Pacific pipeline route because of the right-of-way.
However, he confirmed that the project defined by AGIA would be
FERC jurisdictional.
3:37:18 PM
REPRESENTATIVE SAMUELS remarked:
In the legislation we've got several rate-making
questions, there's a prohibition on negotiated rates,
there is the rolled-in tariffs which can't go more
than 15 percent over the original recourse rates. ...
[With] a presumption of rolled-in tariffs and the
pipeline entity, the mid-stream entity has to approach
you with this rate-making methodology. ... If Exxon,
Conoco, and BP, if there is going to be a rate-making
case, do they all approach you and say "no, we think
this particular one should be incremental" ... What's
your process when there's a dispute?
3:39:01 PM
DEPUTY DIRECTOR CUPINA explained that the process begins in the
certificate stage. The initial rates are set based on estimated
and projected costs, the debt to equity ratio, and rates of
return. This initial rate, he said, goes into the tariff when
the pipeline begins operation. If the pipeline company wants to
increase its rates or initiate a pipeline expansion there would
be a FERC rate change filing. This filing is often before a
hearing judge, following the guidelines in the AGIA legislation.
3:41:08 PM
MR. KATZ added that Section 5 of ANGPA directs that any parties
or the commission can decide that the rates are not proper and
recommend that the rates be reviewed.
3:41:24 PM
REPRESENTATIVE SAMUELS requested confirmation that it is not a
problem for FERC to dictate terms to the mid-stream agency for
rates far in the future.
3:41:57 PM
DEPUTY DIRECTOR CUPINA clarified that FERC typically does not
have a problem with companies entering into contracts; however,
FERC is not bound by those contracts. The commission can not
preclude a party from filing a rate change claim with them, even
though it may have a contract with the state agreeing to certain
rates.
3:43:22 PM
REPRESENTATIVE SAMUELS then asked, "How do you end up with a
true base rate on the first day gas is shipped?"
3:43:54 PM
DEPUTY DIRECTOR CUPINA discussed the possibility of a
certificate holder requesting to amend the initial rate before
pipeline service began. This is another opportunity for
shippers to protest the initial rates, he said. The FERC
encourages the parties to settle risk-sharing issues prior to
certification.
3:45:25 PM
REPRESENTATIVE SAMUELS asked, "How long would it take to set the
base rate, once the gas is shipped, just on a typical pipeline?"
3:46:26 PM
DEPUTY DIRECTOR CUPINA answered that the initial rate is set in
the certificate proceedings before the opening of the pipeline.
When a change is requested before service begins there can be a
quick response. After service begins, he advised, the rate
change filing is a one year process.
3:47:12 PM
MR. KATZ agreed that a Section 4 rate change will take time, if
contested.
3:47:30 PM
CHAIR KOHRING referred to the issue of abandonment. What would
FERC's response be to a licensee that abandons the project,
before or after certification.
3:48:23 PM
DEPUTY DIRECTOR CUPINA informed the committee that the
commission would accept notice of withdrawal of the application
for certification. Furthermore, after a certificate is issued,
losses for not completing the project are borne by the licensee.
Therefore, FERC would have no basis to mandate completion of the
project.
3:49:27 PM
REPRESENTATIVE SAMUELS said, "Does the $500 million grant
automatically lower tariff?"
3:49:55 PM
MR. KATZ said he was unsure.
3:50:19 PM
DEPUTY DIRECTOR CUPINA stated that initial rates are cost-based,
and reflect the reasonable costs; if the costs are lower the
rates will be lower.
3:51:10 PM
REPRESENTATIVE GUTTENBERG questioned how pre-subscription
agreements affect the open season.
3:51:52 PM
DEPUTY DIRECTOR CUPINA indicated that, ideally, an open season
begins without promises of capacity. However, to launch a
project of this size, it may be beneficial to have anchor
shippers. Pre-subscriptions will have to be a matter of public
record, and shippers with interest at the open season must be
offered identical terms.
3:53:03 PM
MR. KATZ agreed that provisions must ensure that companies are
not eliminated or disadvantaged by pre-subscriptions.
3:53:25 PM
REPRESENTATIVE GUTTENBERG asked, "Does this kind of arrangement
exist anywhere else?"
3:53:37 PM
MR. KATZ answered yes.
3:53:44 PM
REPRESENTATIVE DOOGAN asked if FERC published a list of
evaluation criteria for pipeline proposals.
3:54:20 PM
DEPUTY DIRECTOR CUPINA suggested that the committee review
FERC's 1999 policy statement that contains the components of
costs, and public interest, that FERC seeks to balance when
considering an application. However, he added, every project is
case-specific.
3:55:12 PM
MR. KATZ noted that the commission's policy is to let the market
decide whether a pipeline should be constructed, provided that
the builder takes an appropriate risk.
3:55:58 PM
REPRESENTATIVE DOOGAN requested that a copy of FERC'S policy be
provided to the committee.
3:56:26 PM
DEPUTY DIRECTOR CUPINA offered to provide a copy.
3:56:47 PM
CHAIR KOHRING announced that the task of developing a committee
substitute will be completed by a committee of the whole,
instead of the previously identified subcommittee.
3:58:46 PM
REPRESENTATIVE SAMUELS said, "If we had a licensee today, how
fast could you have an open season done, working with our
licensee?"
3:59:06 PM
DEPUTY DIRECTOR CUPINA expressed his belief that 180 days would
be sufficient. The response to the licensee's open season plan
would be within 60 days. He stressed that the open season is
not required to be completed prior to field work, prefiling, and
application development. He advised that much of the work can
happen simultaneously, as long as the open season is completed
prior to the completion of the application for the FERC
certificate.
4:01:46 PM
MR. KATZ added that FERC can expedite the process if the parties
are amicable.
4:02:36 PM
DEPUTY DIRECTOR CUPINA agreed that the application process can
be streamlined.
4:02:59 PM
CHAIR KOHRING asked for confirmation that AGIA does meet the
Federal Energy Regulatory Commission requirements.
4:04:07 PM
MR. KATZ confirmed that there is no conflict between AGIA and
FERC regulations.
CHAIR KOHRING offered to transmit any changes in the bill to
FERC for review.
[HB 177 was held in committee]
4:07:51 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 4:07
p.m.
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