Legislature(2003 - 2004)
05/07/2003 01:40 PM House RES
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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 RESOURCES STANDING COMMITTEE
May 7, 2003
1:40 p.m.
MEMBERS PRESENT
Representative Hugh Fate, Chair
Representative Beverly Masek, Vice Chair
Representative Carl Gatto
Representative Cheryll Heinze
Representative Bob Lynn
Representative Carl Morgan
Representative Kelly Wolf
Representative David Guttenberg
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CONFIRMATION HEARINGS
Board of Fisheries
Floyd F. Bouse, D.D.S. - Fairbanks
Robert (Ed) Dersham - Anchor Point
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 267
"An Act relating to the Alaska Railroad; authorizing the Alaska
Railroad Corporation to provide financing for the acquisition,
construction, improvement, maintenance, equipping, or operation
of facilities for the transportation of natural gas resources
within and outside the state by others; authorizing the Alaska
Railroad Corporation to issue bonds to finance those facilities;
and providing for an effective date."
- MOVED HB 267 OUT OF COMMITTEE
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."
- HEARD AND HELD
HOUSE BILL NO. 246
"An Act relating to the limitation on upland acreage that a
person may take or hold under oil and gas leases; and providing
for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 267
SHORT TITLE:AK RAILROAD BONDS FOR NAT.GAS TRANSPORT
SPONSOR(S): REPRESENTATIVE(S)KOHRING
Jrn-Date Jrn-Page Action
04/15/03 0985 (H) READ THE FIRST TIME -
REFERRALS
04/15/03 0985 (H) O&G, RES, FIN
04/16/03 1018 (H) COSPONSOR(S): CRAWFORD
04/24/03 (H) O&G AT 3:15 PM CAPITOL 124
04/24/03 (H) Moved Out of Committee
MINUTE(O&G)
04/25/03 1126 (H) O&G RPT 5DP 1NR
04/25/03 1126 (H) DP: HOLM, MCGUIRE, FATE,
CRAWFORD,
04/25/03 1126 (H) KOHRING; NR: KERTTULA
04/25/03 1126 (H) FN1: (CED)
04/25/03 1138 (H) COSPONSOR(S): HOLM
05/07/03 (H) RES AT 8:00 AM CAPITOL 124
05/07/03 (H) Hearing Postponed to 1:30 PM
05/07/03 (H) RES AT 1:30 PM CAPITOL 124
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
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) FNS: 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
Hearing Postponed to 1:30 PM
05/07/03 (H) RES AT 1:30 PM CAPITOL 124
WITNESS REGISTER
FLOYD F. BOUSE, D.D.S., Appointee
to the Board of Fisheries
Fairbanks, Alaska
POSITION STATEMENT: Testified as appointee to the Board of
Fisheries.
ROBERT (ED) DERSHAM, Appointee
to the Board of Fisheries
Anchor Point, Alaska
POSITION STATEMENT: Testified as appointee to the Board of
Fisheries.
REPRESENTATIVE VIC KOHRING
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 267.
BILL O'LEARY, Vice President, Finance
Alaska Railroad Corporation (ARRC)
Department of Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: As ARRC's chief executive officer,
responded to questions on HB 267.
WENDY LINDSKOOG, Director of External Affairs
Alaska Railroad Corporation (ARRC)
Department of Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 267, testified that
ARRC supports the use of its tax-exempt bonding authority for a
gas pipeline project; answered questions.
PAUL FUHS, Lobbyist
for Yukon Pacific Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified on HB 267 and answered questions.
RANDOLPH L. JONES, JR., Attorney at Law
Conner & Winters, PC
Tulsa, Oklahoma
POSITION STATEMENT: Representing Williams Alaska Petroleum,
Inc., expressed concerns about the effects of HB 277.
REPRESENTATIVE NANCY DAHLSTROM
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 277; stated
support for the proposed committee substitute (CS) dated
5/6/2003.
JANICE GREGG LEVY, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division (Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Explained the proposed CS for HB 277 dated
5/6/2003; answered questions.
DAVE HARBOUR, Chairman
Regulatory Commission of Alaska (RCA)
Department of Community and Economic Development (DCED)
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns about HB 277, including
that it makes the process less streamlined and provides some
regulatory certainty for a few, but at the expense of others.
JERRY GALLAGHER, Manager
Government Relations
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified in support of the proposed CS for
HB 277 dated 5/6/2003.
JIM DECKER, Senior Counsel
BP Pipelines (Alaska) Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 277; offered
general support for the proposed CS dated 5/6/2003, but
expressed some concerns.
MARK HANLEY, Public Affairs Manager, Alaska
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified on HB 277, emphasizing the need
for reasonable rates and access; said the bill creates certainty
for some at the expense of others.
GENE BURDEN, Senior Vice President of Government Relations
Tesoro Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 277;
emphasized the need for fair and reasonable rates.
ACTION NARRATIVE
TAPE 03-38, SIDE A
Number 0001
CHAIR HUGH FATE called the House Resources Standing Committee
meeting, which had been recessed at 9:21 a.m., back to order at
1:40 p.m. Representatives Fate, Gatto, Morgan, and Wolf were
present at the call to order. Representatives Masek, Heinze,
Lynn, Guttenberg, and Kerttula arrived as the meeting was in
progress.
Number 0175
CHAIR FATE announced at 1:41 p.m. that the committee would take
an at-ease until a quorum was present.
[Due to technical difficulties, the following wasn't tape
recorded but was reconstructed from the committee secretary's
log notes.]
CHAIR FATE called the meeting back to order at 1:46 p.m.
[Representatives Masek, Lynn, and Kerttula had joined the
meeting and thus there was a quorum.]
CONFIRMATION HEARINGS
Board of Fisheries
CHAIR FATE announced that the first order of business would be
consideration of the appointments of Floyd F. Bouse and Robert
(Ed) Dersham to the Board of Fisheries. He asked Dr. Bouse to
explain why he wishes to be on the board.
FLOYD F. BOUSE, D.D.S., Appointee to the Board of Fisheries,
began by saying he has attended several Board of Fisheries
meetings, petitioning on issues he's been involved in.
[Tape recording began at this point.]
Number 0180
DR. BOUSE noted that he has been to Cordova, Valdez, and
villages up and down the Copper River; has a long-time interest
in the process and the issue of fisheries; did sport-fish
guiding for some years, though not since 1998; and was asked by
some people he respects to submit his name for this position.
CHAIR FATE announced a possible conflict of interest because he
may have been one of those people.
Number 0287
REPRESENTATIVE WOLF, citing figures from the tourism industry,
said approximately 1.6 million visitors come to Alaska annually.
He asked, "Where do you stand on natural stock enhancement using
the same genetic brood stock?"
DR. BOUSE replied:
I'm not sure what connection that has to tourism, but
I can tell you ... my feelings about enhancement of
the fisheries: I'm all for it, as long as it doesn't
create a problem. In other words, I don't want things
to be a curse in disguise. Some of our hatchery
projects have gone along really well, and some
haven't. So I think we have to be very careful about
understanding which ones have had any negative impact
on the wild stocks ... that we have to protect.
My ... position is, it's an absolute priority:
protect wild-stock fish to maintain the properly
established biological escapement goals ... in river
management systems. And so the hatcheries are
wonderful; they've made a lot of money for a lot of
people and put a lot more fish ... in the rivers for
everyone. But they've created some problems along the
way. I think we have to maintain the hatchery
systems, but be very careful about which ones ... we
keep producing - and some may have to be shut down.
There are some causing problems throughout the state,
I understand.
Number 0435
REPRESENTATIVE WOLF explained that he was tying tourism to it
because nearly 300,000 nonresident fishing licenses are issued
yearly. He then asked, "Where do you stand on nonindigenous
predator control of freshwater fish?" He indicated there will
be legislation introduced; said this is an issue relating to
northern pike on the Kenai Peninsula and in the [Matanuska-
Susitna area]; and said he wants to know where board members
stand with regard to trying to control "live transportation of
fish, which is currently illegal in the state of Alaska by
unlicensed individuals."
DR. BOUSE replied:
My reaction would be to tried to prohibit ... that as
much as we can. We'd have to look at the resource and
see if it could stand ... a new species of fish being
introduced. But pike are notorious for being ...
deadly predators. And I understand, down ... around
Palmer and that area, down on the Kenai, they've got
pike coming into systems where they're not supposed to
be. ... I would guess we'll be looking at systems
where we'd have to try to eliminate them if we
possibly can. If they're going to be a detriment to
things like rainbow trout or salmon stocks, they would
just have to go.
Now, on the other hand, we have pike in systems like
... the Chatanika River here in Fairbanks where
they're a natural part of the system and the salmon
seem to make it through the gauntlet of pikes. So
we'd have to look at whether they've been introduced
into the wrong place. And if they're causing damage,
... I would guess they'd have to be eliminated.
On the other hand, you find places where pike could be
introduced to create tourism. So we'd have to run
that past the staff; we'd have to run that past the
sport fish ... and the biologist staff to see what the
status of that fishery is, where it's been, and where
it's going, ... if we get pike involved.
Number 0623
REPRESENTATIVE WOLF said he appreciated the response, but a
fisheries biologist had explained to him, when questioned about
northern pike on the Kvichak River in the Bristol Bay region,
"Look at the watershed, the volume of fish returning to that
system, and then compare them to the Kenai River." It's a huge
difference, he said.
Number 0670
REPRESENTATIVE GUTTENBERG asked Dr. Bouse to comment on the
Chitina dip net fishery, in which he himself participates.
DR. BOUSE responded that it is a trek his family makes one to
three times a year because they enjoy fishing there; it has been
part of the family fishing experience since 1985, and he'd
learned from a now elderly man who started fishing there in the
1960s. Noting that it's an important source of fish for him and
very important to thousands of Alaskans, Dr. Bouse said he
appreciates the opportunity to take part in it and looks forward
to trying to protect it if possible. In response to questions
from Representative Masek about his previous travel to rural
areas, he explained that it strictly related to dentistry and a
state contract for research on Bush access to health care; he
also mentioned the [federal] Public Health Service.
CHAIR FATE asked whether there were further questions of
Dr. Bouse and then asked Mr. Dersham to testify.
Number 0900
ROBERT (ED) DERSHAM, Appointee to the Board of Fisheries, noted
that he'd served six years on the board and had submitted his
name for consideration for another term. He told members:
During the six years, I've become a big fan of our
public process in Alaska to deal with issues of fish
and game. I have quite a bit of experience with the
Western Association of Fish and Wildlife Agencies and
am able to compare our process with the other states,
and I think ours ... is definitely the (indisc.--
coughing) public process of any Western state; that
goes all the way back to the delegation that the
legislature made that created the boards of fish and
game ... and the criteria and policies that have been
developed over the years such as the allocation
criteria and the different policies ... for
consideration of emergency petitions and agenda-change
requests and on into ..., more recently, our use of a
subcommittee system for board meetings.
I've ... got a lot of experience utilizing the
policies and procedures of the board. And ... we're
looking at having five new board members now, so ... I
agreed to submit myself to be considered for another
term because I feel I can ... be helpful in keeping
the process moving along and help the new board
members ... get up to speed with that.
Number 1011
REPRESENTATIVE WOLF asked, under this new administration, how
things can move forward without looking at the past
administration, to bring "our Cook Inlet together."
MR. DERSHAM said he'd gone through four board meetings with four
newly appointed members, whom he thinks highly of; he offered
his assessment that none of those four has a personal agenda to
push and that all want to work to "conserve and develop the
fisheries of Alaska." In that regard, he expressed confidence
that it will work out well: the more that members listen
without preconceived notions about the final determination of
certain issues, the better things work. As far as specifics
relating to Cook Inlet, he said the issues are tough and must be
dealt with one at a time, with the most input and thus the best
decisions possible.
Number 1181
REPRESENTATIVE WOLF asked where Mr. Dersham stands on
controlling the transportation of live pike and "restocking by
bucket biology."
MR. DERSHAM replied that this is a very emotional issue,
depending on what part of the state or piece of water is being
discussed; there are a lot of strong opinions. He reported that
the Western Association of Fish and Wildlife Agencies did a
project for which one question related to people's feelings
about pike; there was such a wide range of responses across
Alaska that it became a "poster boy of presentation" at a
meeting to show how different the attitudes are statewide on
this issue. Noting that the Kenai Peninsula is beginning to
have some problems with pike and doesn't have anyplace where
pike have been established "in the purposes of the fisheries,"
he added, "So I don't think pike have any place on the Kenai
Peninsula." Other than that, he said, it must be dealt with on
a case-by-case basis because [pike] certainly can wreak havoc,
particularly with silver salmon stocks.
Number 1324
REPRESENTATIVE WOLF agreed. He brought attention to issues in
Cook Inlet that arise when there are numerous user groups
including commercial, sport, and personal use. He asked, "Where
would you stand on some natural, same-genetic-stock enhancements
producing some dead-end fisheries, something like what we have
in Homer Lagoon, but off of one of our Lower Peninsula streams?"
MR. DERSHAM responded that it must be addressed one case at a
time; in a general sense, though, he supports enhancement
wherever possible and has been a supporter of enhancement
wherever it appears to be viable and not harmful to the
resource.
Number 1370
REPRESENTATIVE GATTO asked Mr. Dersham, as a board member, what
method he would use to eliminate a nonindigenous species in a
given area.
MR. DERSHAM replied:
Just for example, with pike, we've dealt with
proposals ... and the department where, in certain
closed systems, they were able to use rotenone. ... In
other places, we've considered ... such things as
increased bag limits or mandatory retention or even
legalized crossbows for pike - but that ... was kind
of an issue ... of stunted pike in a few lakes where
[we] allowed that; it wasn't trying to wipe out the
species. But we just ... try to take each case based
on the nature of the system and ... the advice we get
from the department, and then of our public input.
And so we're pretty flexible.
Number 1458
REPRESENTATIVE WOLF remarked that rotenone doesn't have a 100
percent kill rate for northern pike, as shown by some studies.
MR. DERSHAM said that's not surprising, since they're tough.
CHAIR FATE asked whether there were further questions. He
thanked the appointees and closed testimony.
Number 1516
CHAIR FATE informed members that he would pass around a sheet
for them to sign. [No motion was made, but the confirmations of
Dr. Bouse and Mr. Dersham were treated as advanced from the
House Resources Standing Committee.]
The committee took a brief at-ease at 2:05 p.m.
HB 267-AK RAILROAD BONDS FOR NAT.GAS TRANSPORT
CHAIR FATE announced that the next order of business would be
HOUSE BILL NO. 267, "An Act relating to the Alaska Railroad;
authorizing the Alaska Railroad Corporation to provide financing
for the acquisition, construction, improvement, maintenance,
equipping, or operation of facilities for the transportation of
natural gas resources within and outside the state by others;
authorizing the Alaska Railroad Corporation to issue bonds to
finance those facilities; and providing for an effective date."
Number 1571
REPRESENTATIVE VIC KOHRING, Alaska State Legislature, sponsor,
explained that HB 267 authorizes the board of the Alaska
Railroad Corporation (ARRC) to provide tax-exempt bonds as a
financing source to encourage construction of a gas pipeline.
It would make the monies available for private industry to
borrow, providing cheap financing because of the current low
interest rates and the fact that these are tax-exempt bonds.
Commending Chair Fate's work on HB 116, a major piece of the
puzzle, he referred to work in Congress on an energy package and
expressed hope that it will include various permit
authorizations and so forth for a gas pipeline. Noting that the
big question is whether this pipeline will be deemed financially
feasible by those that would build and own it, he said [HB 267]
is a very important step in getting that gas pipeline built.
REPRESENTATIVE KOHRING explained that these bonds, if issued,
would be "nonrecourse debt," the responsibility of those that
borrow the money, not ARRC or the State of Alaska; no state
assets would be "liened" to repay it, and neither ARRC nor the
state would own the pipeline, which would be owned by private
companies that would build, own, and operate it. The bond
proceeds would finance its acquisition, construction,
improvement, maintenance, equipping, and operation. This bill
authorizes ARRC to issue up to $17 billion in bonds for
construction of the pipeline, which is estimated to cost as much
as $30 billion; the amount can be increased if the legislature
so chooses, but Representative Kohring said he'd been told $17
billion would provide the lion's share and enable the industry
to have some pretty cheap financing to make the project viable.
He said there is no ceiling to the debt that could be incurred,
as far as he'd been told.
Number 1780
REPRESENTATIVE KOHRING brought attention to correspondence in
committee packets from George K. Baum & Company in response to
Representative John Harris, co-chair of the House Finance
Committee, which offers the analysis that this is feasible.
With regard to support from the industry and a potential
pipeline owner, packets also contain a letter from
ConocoPhillips Alaska, Inc., which he said has testified
previously in support of this legislation. As to ARRC's ability
to issue tax-exempt bonds, this authority was granted in 1983 by
Congress when the State of Alaska acquired the railroad from the
federal government, he said, noting that Congress reaffirmed
that authority in the tax-reform Act of 1986.
Number 1849
REPRESENTATIVE GATTO said he supports this, but several months
ago had heard it would be $20 billion each to build, operate,
and finance it, for a total of $60 billion. He observed that
Representative Kohring had talked about $30 billion, which would
raise it to $70 billion if the other numbers were correct.
Noting that at some point there will be more spent than can be
generated, he asked at what point this isn't worth doing.
REPRESENTATIVE KOHRING deferred to testifiers including Paul
Fuhs [lobbyist for Yukon Pacific Corporation].
CHAIR FATE also requested clarification from Mr. Fuhs.
Challenging the figures mentioned by Representative Gatto, he
said there will be different costs for different [proposed]
segments, and the $20 billion mentioned was from Prudhoe Bay to
Chicago, not even to a hub in Alberta, Canada.
REPRESENTATIVE KOHRING mentioned estimates from $20 billion to
$30 billion for construction costs if it goes "the Canadian
route - Alaska down to Tok and down into Canada towards
Chicago." If it were built down the existing pipeline corridor,
he said he'd heard perhaps $12 billion. He expressed hope that
eventually there'd be spur lines in Alaska to meet increased
energy demands.
Number 1991
REPRESENTATIVE WOLF stated support for the whole concept. Since
ARRC is owned by the state, however, he asked whether selling
these bonds would tie this to Title 36 such that builders of the
pipeline would have to pay the prevailing wage, which for
commercial projects is over $38 an hour for a carpenter.
REPRESENTATIVE KOHRING deferred to ARRC personnel.
Number 2062
BILL O'LEARY, Vice President, Finance, Alaska Railroad
Corporation (ARRC), Department of Community & Economic
Development, noting that he is the chief financial officer for
ARRC, said it isn't in his purview. He conveyed his initial
inclination, however, that it wouldn't be subject to a
prevailing wage [requirement] under Title 36 because it wouldn't
be considered public construction. He said he would defer to
ARRC's legal staff for a more definitive answer, and could get
back to the committee on that, if so desired.
REPRESENTATIVE WOLF asked that Mr. O'Leary provide an answer at
least to Representative Wolf's office.
Number 2134
REPRESENTATIVE GUTTENBERG asked about the state's ability to
"put some policy into these bonds" with regard to an Alaska-hire
priority, for example.
MR. O'LEARY said he believed that was attempted in last year's
similar legislation, which to his belief was amended with
Alaska-hire provisions and so forth. However, he said that
isn't something normally done through a bond indenture or
anything of that nature. He suggested it has more to do with a
legislative approach than the actual sale of bonds.
REPRESENTATIVE GUTTENBERG asked whether there was a legal
opinion on the state's ability to do that.
CHAIR FATE said there was.
Number 2218
REPRESENTATIVE GATTO asked what happens if there is a default on
the bonds and who becomes the responsible party.
MR. O'LEARY answered that these bonds are planned to be sold as
a nonrecourse obligation. The full faith and credit of neither
ARRC nor the State of Alaska would be behind the bonds; the
underlying credit would be that of the "producers" or whomever
ARRC would have the contractual arrangement with for the actual
construction and operation of the gas line. If there were a
default, it would not come back to the assets of the state or
ARRC, to his understanding of how this is envisioned.
REPRESENTATIVE GATTO said he interprets that as "risk capital."
MR. O'LEARY responded, "It's certainly the risk that would be
factored in when the bonds are being priced and being sold in
the market, yes."
REPRESENTATIVE KOHRING indicated the legislation somewhat
addresses that issue by calling for the railroad board, which
would actually decide to whom they'd issue the proceeds of the
bonds, to first have to obtain adequate assurance that a project
sponsor is able to repay the bonds; to determine that any
contract or lease is sufficient to pay the bonds as scheduled;
and to ensure that reserves are maintained for all payments and
to pay all costs necessary to secure those bonds.
Number 2333
WENDY LINDSKOOG, Director of External Affairs, Alaska Railroad
Corporation, Department of Community & Economic Development,
told members:
The railroad does support the use of our tax-exempt
bonding authority for a gas pipeline project. We feel
... if that's a good tool that helps the project go
forward, then great. Part of our mission is to
support economic development for the state, so we do
feel that falls within our mission.
MS. LINDSKOOG, in response to a question from Representative
Guttenberg, said a similar bill was introduced last year as a
stand-alone bill and was combined with HB 519, the bill
referenced just a few minutes ago. That is where a lot of the
policy issues were combined with the actual use of the tax-
exempt bonding. "As it turned out last year, I think we were
the smallest part of that bill, really," she added.
Number 2406
PAUL FUHS, Lobbyist for Yukon Pacific Corporation (YPC), noting
that YPC had provided information which Representative John
Harris had requested on project economics, informed members that
this attachment [in packets] includes wellhead prices and
construction costs for a line that would follow the [oil]
pipeline corridor to Valdez. He said, "There are two projects
out there, as you know. This bill is nonspecific. It could go
to either one, whichever finds economic partners and is going to
move forward."
MR. FUHS referred to correspondence in packets from George K.
Baum & Company. Noting that it says the bonds for the project
could be issued if the ARRC vehicle were available, Mr. Fuhs
remarked, "They think it's quite important to the project." He
pointed out that a spreadsheet from that company compares the
difference between having and not having the railroad bonding;
he said the difference of almost 2 percent on the rate of return
is pretty substantial on a project this size. Mr. Fuhs also
indicated George K. Baum & Company had analyzed the Alaska
Natural Gas Development Authority established by Proposition 3.
"They also indicated that it would facilitate that," he said.
MR. FUHS addressed potential revenues for the state. He opined
that no other project out there could help meet some of the
budget shortfalls. Although [developing the Arctic National
Wildlife Refuge (ANWR)] would be good for revenues, he said,
"It's not much for, really, private employment. It's ... not
all that much activity." He indicated the spreadsheet shows
that with a privately owned [gas pipeline], $350 million to $400
million a year [would come to the state]; with a development
authority, the return to the state could be as high as
$1 billion a year.
Number 2535
MR. FUHS turned attention to previous questions and said:
First, last year with the legislation in terms of
Alaska hire, it wasn't put as "Alaska hire." It was
put as "project labor agreements with the unions," and
that was not adopted. ... The supreme court determined
that Alaska-hire laws that discriminated were against
the constitution.
However, the way that you can do it through bonding -
and we did it through AIDEA [Alaska Industrial
Development and Export Authority] with the Red Dog
Mine - if you do it as an incentive, the more people
that you hire, that your interest rate is tied to it,
you can do it that way. And that's what we did with
the Red Dog Mine, and that's ... one reason why
there's a very, very high percentage of Alaskan and
local hire, actually, in the Kotzebue area, was
because of the way that bonding was put together. ...
Most of the last pipeline was built with a project
labor agreement. Our company thinks that's the best
way to go. You go for "no strike" clauses, you go for
efficiencies and interjurisdictional work, ... you get
the qualified people, and you don't have work
stoppages.
Number 2558
MR. FUHS responded to Representative Gatto's earlier question by
saying those numbers aren't that far off. He noted that
financing costs when a person buys a house may double the amount
owed, for example. Although $20 billion may be the cost of
building the project, it will be another $20 billion by the time
the debt is paid off plus interest over 20 or 30 years. In
addition, there are costs to operate, maintain, and repair it.
REPRESENTATIVE GATTO said "20, 20, 20" was just easy to
remember, but it leads to the question of at what point "30, 30,
30" or "40, 40, 40" would be okay. He again asked whether there
is a number for the point at which it wouldn't be worth it.
MR. FUHS replied:
Well, the numbers that are in our information here, as
far as I know, are the only economic data that's ever
been put out on any project. And we haven't really
seen data on the Canadian project, the Alcan pipeline
project. Maybe some of the other members have seen
it, but it's never been presented to the public.
But one thing that you've got with this nonrecourse
financing is, because it's not general obligation
debt, in order to sell those bonds you have to have a
bonding company that has enough faith in your project
and the returns that they're going to risk their
reputation to go out and sell those bonds - because if
they fail, it's going to be a black eye on that
company.
The other thing is, the investors are going to look on
it and say, "Hey, there's no deep pockets behind this;
we really have to believe in the revenues of the
project." So ... you have two stops along the way of
somebody who's actually putting their money and
reputation on the line, that if the economics aren't
there, those bonds will not be sold.
Number 2657
CHAIR FATE referred to Mr. Fuhs's discussion of possible lines
and asked, "What if both lines are financed and the projects go
forward: does that require one bonding package, or is that
going to require more than one bonding package for the separate
lines?"
MR. FUHS answered that it depends how the project is structured.
Somebody could want to do both a line to Valdez and one through
Canada. Or somebody could want to do one line, and someone else
could want to do a second line. If there were different
sponsors, there would be different bonding packages. There
might be a need to revisit this and increase the levels that
would be available if there were going to be a "Y" line.
CHAIR FATE asked whether there is discretion. In other words,
can they pick and choose? For example, if they reach capacity
in bonding of the Canadian route, there wouldn't be much left
over for the Valdez intertie and the pipeline to tidewater. He
asked how they would do that, and acknowledged perhaps he should
ask ARRC personnel. He added:
The thought occurs to me as we get closer and closer
to actually building a pipeline, and as the authority
under [Proposition] 3 becomes closer and closer to
realization - I've already had answers from FERC
[Federal Energy Regulatory Commission] as to how they
will handle ... the interplay between the three
authorities, RCA [Regulatory Commission of Alaska],
FERC, and the new [Proposition] 3 authority, ... which
they answered - but this leaves me ... to wonder how
that could be coordinated, providing that the Alaska
Railroad were ... actually asked to come forth with
bonding capacity. I don't know the answer - that's
why ... I'm asking - whether they would ... prioritize
that ... because of the bigger pipeline.
MR. O'LEARY replied that for any projects where the railroad
bonding authority would be used, most certainly ARRC would be
very interested in ensuring that there were checks and balances
and that the projects were viable. Although there is no stated
limit to the amount of bonds ARRC could issue, there is sort of
a de facto limit as to what investors will invest in. At some
point, if too many projects seemed to overlap, there could be a
problem with marketing the bonds.
Number 2820
MR. FUHS noted that the bill authorizes a certain amount. If
more were needed later because of a fortunate occurrence such
that both lines would be [built], the amount could be amended.
He pointed out that ARRC has a "federal tax loophole" but no
authority to issue the bonds; the legislation therefore gives
the railroad the power to issue the bonds. "As a result, you
are transferring the power to make those decisions to the Alaska
Railroad board," he said. "And if there is any prioritizing to
be done or whatever, you're really authorizing the railroad
board to make those decisions."
Number 2856
REPRESENTATIVE GATTO asked whether the board is appointed or at
least confirmed by the legislature.
MS. LINDSKOOG replied that the board is appointed by the
governor but isn't confirmed by the legislature.
REPRESENTATIVE GATTO expressed concern that the legislature is
out of the loop, therefore, as far as the decisions of the
board, and is transferring its authority to the railroad.
CHAIR FATE remarked that [ARRC] is quasi-private because it is
run as a private industry, which he said is good.
Number 2926
REPRESENTATIVE MASEK moved to report HB 267 out of committee
with individual recommendations and the accompanying fiscal
notes and correspondence; she asked for unanimous consent.
REPRESENTATIVE GATTO objected.
TAPE 03-38, SIDE B
[The following is only partially on tape and was reconstructed
from the committee secretary's roll call sheet.]
A roll call vote was taken. Representatives Kerttula, Masek,
Lynn, Morgan, Wolf, Guttenberg, and Fate voted in favor of
reporting HB 267 from committee. Representative Gatto voted
against it. Representative Heinze was absent. Therefore, HB
267 was reported out of the House Resources Standing Committee
by a vote of 7-1.
The committee took an at-ease at 2:33 p.m.
HB 277-PIPELINE UTILITIES REGULATION
[Contains discussion of HB 267]
CHAIR FATE announced that the last 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." [Before the committee was
CSHB 277(O&G), which the sponsor statement addressed; in packets
was a proposed committee substitute (CS).]
Number 2922
REPRESENTATIVE MASEK moved to adopt the proposed CS, Version
CSHB 277(RES) bil.doc, 5/6/2003, as a work draft. There being
no objection, the proposed CS dated 5/6/2003 was before the
committee.
Number 2833
RANDOLPH L. JONES, JR., Attorney at Law, Conner & Winters, PC,
representing Williams Alaska Petroleum, Inc. ("Williams"), noted
that he'd started in 1981 when MAPCO acquired Earth Resources;
he said he's been representing the North Pole refinery as a
shipper on the Trans-Alaska Pipeline System (TAPS) since 1981.
Prior to that, he worked for El Paso Natural Gas Company ("El
Paso"). He told members that in the 1970s he looked at all the
federal and state regulatory and statutory issues that could
arise with respect to El Paso's proposed natural gas pipeline
from the North Slope to Valdez and then shipping it as LNG
[liquefied natural gas] to California. In addition, in the
1970s, while with El Paso, he worked with Sohio on the project
to convert one of El Paso's natural gas pipelines to a crude-oil
pipeline for transportation from Long Beach to Texas.
MR. JONES conveyed Jeff Cook's apology for being unable to
testify this day and offered some facts on his behalf. First,
he said the North Pole refinery is the state's largest. It
processes approximately 215,000 barrels a day of ANS [Alaska
North Slope] crude oil, of which it retains 70,000-80,000
barrels of refined petroleum product. Approximately 60 percent
of that is jet fuel; up to 18 percent is naphtha that may be
exported; and the remainder is gasoline, diesel, heating oil,
asphalt, and number 4 fuel oil, which the Golden Valley Electric
Authority uses to generate electricity. He said Williams
provides approximately 60 percent of the jet fuel consumed in
Alaska. The refinery expansion these past few years has
primarily gone to producing more jet fuel so that it is produced
within Alaska, rather than imported from other locations.
MR. JONES referred to HB 267, just discussed, and noted that
Williams is the largest customer of the Alaska Railroad
Corporation (ARRC); approximately 60 percent of its revenue
comes from shipments by Williams of petroleum products going
from Fairbanks to the Anchorage terminal. Since 1978, the North
Pole refinery has purchased over 300 million barrels of state
royalty oil, valued at about $5 billion. Williams currently
employs slightly over 500 employees in Alaska and spends just
under $1 billion a year for payroll, crude oil, electricity, and
so forth.
Number 2639
MR. JONES turned attention to HB 277 and said this proposed
legislation seems to stem from the perception that the
Regulatory Commission of Alaska (RCA) has failed to do its job
and has stepped into areas where it shouldn't tread, and that
this was left either to the domain of FERC [Federal Energy
Regulatory Commission] or to be unregulated. He said, however:
It's important to note what the United States court of
appeals for the District of Columbia stated in 1987
when it ruled in the Arctic Slope Regional Corporation
vs. FERC appeal of FERC's approval of the TSM [TAPS
settlement methodology] settlement agreement between
the State of Alaska and the TAPS carriers, which set
the TSM methodology for calculating the maximum
interstate rate on TAPS. The court stated, "Thus any
such rates are subject to challenge by nonsettling
parties such as Arctic, as well as any other
nonsignatory" - end quote.
It's important to note that the shippers, Williams and
Tesoro, [which] had brought the rate case challenging
the TSM rates for 1997 ... through 2000 for intrastate
shipments, were nonsignatories to that agreement. In
fact, Williams, which was MAPCO at that time, had
settled the "Quality Bank" case in 1984 and it also,
as part of that settlement, established the "rolled-in
barrel-mile" methodology for determining the
intrastate rates from Pump Station [No.] 1 to refinery
connections. As part of that settlement, MAPCO was
required to withdraw from the interstate rate case.
It did provide that if MAPCO's - and now Williams' -
interests were ever affected, they would have a right
to come forward and challenge those rates.
The court also stated that FERC made several things
abundantly clear: "FERC's approval of the settlement
did not, in any manner, determine that the rates
established under it are or will be just and
reasonable, that the settlement would be of no
precedential value in future rate challenges" - end
quote. And, in addition, perhaps looking into the
crystal ball and trying to predict the future, the
court stated, "There is another factor as well. The
reasonableness of rates to be charged into the 1990s
and beyond can hardly be evaluated exclusively on the
basis of a factual record that draws to a close in
1982" - end quote.
Number 2519
MR. JONES continued:
So what happened when the shippers came forward,
challenged TSM rates? The RCA set three easy
standards that the TAPS carriers had to meet. And I
should note that the State of Alaska, as a signatory
to the TSM settlement agreement, has an obligation to
defend that agreement and, in fact, supported the TAPS
carriers during the rate case.
Number 2420
MR. JONES noted that Sections 1-3 of the bill affect DR&R
[dismantlement, removal, and restoration] and said:
There's been concern, and there's a removal of
facilities. ... Statements in testimony [have] been,
it's not the RCA's place to really regulate DR&R,
that's for DNR to do. But in looking at it, it's
important to keep in mind that the TAPS carriers
recently, in a filing with the RCA, noted [that] ...
TAPS crosses approximately 53 percent [federal] land,
and the other 47 percent would be state, Native lands,
and also private land. But the way the funds would be
distributed from the rates, over 90 percent of the
DR&R funds [would be] generated by interstate tariffs,
and only less than 10 percent by intrastate tariffs.
So, in looking at that, the important thing is,
really, all the DR&R is going to take place within the
state of Alaska. This isn't a case where a pipeline's
going through multiple states. The state has the
interest in seeing that DR&R is accomplished on all
lands within the state. And the best agency to do
that is an independent agency like the RCA. It can
oversee all of the rates. There is no federal
regulation of DR&R. The Interstate Commerce Act does
not cover it, and FERC doesn't have statutory
jurisdiction to deal with DR&R. So the logical entity
to fill that void would be the RCA.
Number 2392
MR. JONES continued:
HB 277 goes to limit the RCA to strictly intrastate
matters, and not to step in and fill voids where there
is no regulation. And with respect to DR&R, that
would be to the detriment of the state. It would seem
that the state would want an independent state agency
making sure that all of the funds collected from
shippers were available to make sure that DR&R
occurred appropriately and correctly over all the
lands. And knowing the timeframe, Mr. Chair, I will
stop at that point; I figure others will address other
parts of the legislation.
MR. JONES, in response to Chair Kohring, affirmed that he had
the previous bill versions as well as the proposed CS dated
5/6/2003.
Number 2329
REPRESENTATIVE NANCY DAHLSTROM, Alaska State Legislature,
sponsor, explained that HB 277 addresses concerns related to
pipeline utility regulation. She offered her belief that the
changes it proposes are critical and "advocate for clarity and
future certainty." Stating support for the changes in the
proposed CS, she urged members to look at the bill objectively,
listen to testimony, and ask tough questions to see whether or
not appropriate changes need to be made in order to do the right
thing for the state.
CHAIR FATE requested that the Department of Law give an overview
of the changes made in the proposed CS from the original bill.
Number 2137
JANICE GREGG LEVY, Assistant Attorney General; Oil, Gas & Mining
Section; Civil Division (Juneau); Department of Law, discussed
the proposed CS as follows:
Section 1 is an addition from the original House Bill
277. And this provision would provide that the
commissioner of DNR [Department of Natural Resources]
is the individual who coordinates and oversees the
performance of the obligations and compliance with the
terms of the lease that, in fact, his agency issues,
including the right-of-way leases for pipelines. And
that would include overseeing obligations of DR&R - or
dismantlement, removal, and restoration. ...
We have always believed that the commissioner of DNR
has that authority; that's the entity that enters into
our leases. But ... just for clarity's sake, because
we are removing similar language from the RCA statute
- or that's what this bill would do - we want to make
sure that there's no confusion, that ... the
obligation to do this does reside within state
government. And that's where the administration
believes it is properly placed.
And maybe just as a response to something that Mr.
Jones said a few minutes ago, the administration has
thought a lot about where the responsibility for
overseeing DR&R would properly reside within state
government. And we would just agree with the notion
that it belongs with a body that primarily regulates
pipeline rates and pipeline service.
We think it's more appropriate for that entity that
owns our lands, that leases our lands, that determines
what provisions go into the leases to protect the
state - that's the proper entity to enforce the lease.
And we have mechanisms. If there's a breach of
contract, a nonperformance, we go to court; there's
not a problem there. And ... the regulatory body with
the expertise over the lands ought to be the one that
oversees the obligations. So that's our thoughts on
Section 1.
Number 1981
MS. LEVY addressed Section 2 as follows:
In Section 2, the original language of House Bill 277,
... where it said, "shall regulate pipeline and
pipeline carriers in the state", ... it deleted that
language and then just inserted that it would regulate
... pipeline transportation service. This raised some
concerns by shippers and some within state government.
And we thought it would be appropriate to clarify that
the commission would continue to regulate pipelines
and pipeline carriers, but, again, only to the extent
that it's applicable to the intrastate transportation
services. This is also the section that deletes, in
subsection (a)(2), the performance of obligations
under and compliance with state leases. ... I think I
just adequately explained that in Section 1.
MS. LEVY addressed Section 3 as follows:
Section 3 is, I believe, the exact same language that
appeared in the original House Bill 277 to clarify
that the commission does not have jurisdiction over
the implementation of DR&R, or over amounts collected
from interstate shippers for DR&R, but makes very
clear that it does have jurisdiction over amounts
collected in the pipeline carriers' intrastate rates -
that's the last phrase. And I think that's absolutely
critical and important, that RCA is certainly the
appropriate commission to determine what, if any,
should be collected from intrastate shippers for
performance of DR&R that applies to the intrastate
service.
Number 1847
REPRESENTATIVE KERTTULA offered her understanding under the bill
that the RCA has intrastate-rate authority over DR&R, that
interstate authority remains with FERC, and that DNR would have
authority for the actual DR&R itself when it happens.
MS. LEVY affirmed that, but added:
There's been some statements made that the FERC has no
authority over DR&R and so this leaves a big gap
within the state and that this is a concern. And, in
fact, the FERC does not regulate the performance of
DR&R, and I think that's what you were just referring
to, the actual taking down of the facilities, the
restoration of the land. However, it does have
authority over the rates that are collected from
interstate shippers to do that. So who does oversee
the DR&R performance on federal lands? And the answer
is, of course, the [U.S.] Department of the Interior,
who entered into the lease. So this brings the state
consistent with the FERC practice.
Number 1730
MS. LEVY continued:
So, then, the only remaining question is, "Well, what
about over lands that are not owned by the state or
the federal government, that are instead private
lands?" And, again, the answer is, the landowner,
first of all, never had to permit the pipeline to
cross the private land. But if the landowner agreed
to that, it probably did so with terms that would
assure that the performance of these environmental
obligations would not fall to the landowner but to the
lessee to whom they were leasing this land. So I
guess the thought is, the administration believes the
less restrictive and more flexible mechanism should be
employed to ensure the contractual obligations are
performed.
And then, trying to think of all the possibilities,
... suppose you have a private landowner who did not
provide that there was a DR&R obligation. Well,
what's left is state and federal environmental laws
and regulations. And we all know that those exist and
that cleanup is required, in any event, by the last
user, by the owner. And so, ... to provide that that
is to be implemented or overseen by yet another
regulatory body is not only inefficient, it could lead
to conflicts as to what is actually required. ...
I would see this as really an improvement in clarity.
Everything is covered. Those who own the land have
the absolute right and authority to enforce the terms
of their private real estate contracts with the
pipeline carriers, and we turn to the RCA for whether
or not monies can be collected for them to perform
those obligations.
Number 1640
REPRESENTATIVE KERTTULA asked, when shippers file their rates,
whether it is easy to understand what amount is for DR&R as well
as what is interstate versus intrastate.
MS. LEVY replied:
It's easy to tell what's interstate and what's
intrastate because ... both rates have been filed.
And they go to the carrier with their resource and
say, "Please ship this interstate or intrastate."
So that's determined by the shipper, so they know the
rates they're paying. ...
I know that on Cook Inlet pipeline, the RCA had
identified a certain amount ... that could be
collected for DR&R. I think in TAPS over the last
number of years, this has been incorporated into the
tariff overall. ... If the question is, can we
determine, ultimately, what has been collected for
DR&R, I think the answer is yes. There might be some
disputes about it, but the RCA certainly has the
authority to hear any of those discussions and to
determine, based on the evidence presented, what, in
fact, has been collected.
REPRESENTATIVE KERTTULA suggested it really doesn't matter how
much was collected, because even if it costs more, they have the
duty under the lease or right-of-way to take it down, clean it
up, and take care of it. She asked whether that is correct.
MS. LEVY answered in the affirmative.
Number 1517
REPRESENTATIVE GUTTENBERG asked whether DR&R that has been
collected is kept in a physical place, is in a trust or fund, or
is covered under a bond.
MS. LEVY replied:
The answer is, it depends on what was ordered by the
regulatory body. In the case of TAPS, up until this
point, neither FERC nor RCA ordered any kind of an
external fund or accounting, or even an internal fund
... where the monies sit. On some other pipelines, at
one time, originally, I believe Cook Inlet pipeline
was ordered to put money in escrow ... or in an
external fund; then, on reconsideration, it was
allowed that it could account for the monies ...
internally but keep books that identified those
amounts. So the regulatory body has the authority to
determine how that money will be taken care of.
Number 1429
MS. LEVY addressed Section 4, saying the addition to HB 277 that
the administration supports is the last sentence, which read
[beginning on page 4, line 30]:
However, nothing in this section limits the powers of
the commission to consider both interstate and
intrastate cost requirements as needed to determine
what costs may be recovered by a pipeline carrier
through intrastate rates [SET OUT IN THIS CHAPTER
EXCEPT TO THE EXTENT TO THE EXTENT THEY ARE PREEMPTED
BY FEDERAL LAW].
MS. LEVY noted that the preceding sentence said the commission
may not consider revenue collected on interstate transportation
when evaluating intrastate rates. She explained:
The reason for that is - under the administration's
view and our understanding of both state and federal
practice - the FERC, in determining what can be
collected on the interstate side, doesn't do it based
on what the RCA allows to be collected, ... nor should
the reverse be true - the RCA should not determine
what can be collected based on what's being done on
the interstate side.
The proper way is for the regulator to consider what
the overall costs are, and that requires you to look
at the total costs [incurred] - all of the operation
and maintenance of the company's pipeline - and then
allocate the amount that's appropriate to either the
interstate or intrastate ...; it's 5 percent, it's 8
percent, 10 percent - that's the amount that should be
borne by those shippers.
So you need to know the total cost requirements, so
that's what the last sentence provides. You don't
need to know what was collected on the other side,
although it is a matter of public record. And the
reason for that is, ...for example, if the RCA were to
say, "Well, you need to collect a million dollars, but
we see you collected too much on the interstate side,
so we're going to reduce what you can collect over
here" - we think the right mechanism, if someone
thinks there's been too much collected on the
interstate side, the right way is go to FERC, complain
to them. That is respectful of the dual ...
jurisdiction that exists on these pipelines.
Number 1280
REPRESENTATIVE GUTTENBERG referred to Section 4, [page 4] lines
28-31. He said:
This is not dealing with ... a complainant going to
FERC. Aren't you just saying that they cannot
consider it in evaluating the rates? They can't look
at it at all? Wouldn't there ... possibly be some
consideration that they need to look at as far as what
the interstate is when they're looking at the
intrastate?
MS. LEVY asked, "Why would they need to know what's being
collected on the interstate side?"
REPRESENTATIVE GUTTENBERG replied, "Well, I'm asking you that."
MS. LEVY answered:
Well, I guess, from the administration's standpoint,
they don't need to know that. They just need to know
what amount of overall costs should be collected from
the intrastate shippers. And, for example, maybe the
interstate side doesn't allow them to collect enough.
We don't want them to shift that burden over to
intrastate shippers. In fact, there's federal law
that says ... one side shouldn't be subsidizing the
other side.
Number 1210
REPRESENTATIVE GUTTENBERG suggested, "But here you're going
farther than that. You're saying they cannot even consider it."
MS. LEVY responded:
When evaluating intrastate rates, that ... shouldn't
be the basis for determining what an appropriate
intrastate rate is. The basis is, what are the needs,
what's the cost of service on the intrastate side. ...
What you need to know is: what was the cost of
building the pipeline? But you don't need to know how
much you got from interstate shippers in income and
revenues; you just need to know what the overall costs
are and then say, "Here's the fair amount to be borne
by our in-state shippers."
REPRESENTATIVE GUTTENBERG commented that he doesn't think they
necessarily need to know how much was collected, but possibly
need to know the methodology for how that number was derived.
Number 1102
REPRESENTATIVE GATTO referred to Representative Guttenberg's
concern and the language cited above [Section 4, beginning on
page 4, line 30]. He asked whether Ms. Levy was saying that
both are considered, but that because too little is obtained for
one doesn't mean the cost can be shifted to the other.
MS. LEVY said that's right, if she understood correctly.
Suggesting perhaps some language improvement is in order, she
highlighted an important distinction between revenues collected
and what pipeline cost requirements are: "It's appropriate to
consider all of the costs; it's not appropriate to consider the
revenues from the interstate side." She asked if that helped.
REPRESENTATIVE GATTO said no, but acknowledged Ms. Levy's point
that perhaps the language needs to be clearer.
Number 0978
REPRESENTATIVE KERTTULA continued with Section 4, asking why the
revenue wouldn't be evidence of what the proper costs were.
MS. LEVY replied:
If the pipeline costs $1,000 to build and that was the
investment, ... and let's say 90 percent of the
shipments are interstate and 10 percent are
intrastate, then you'd think that the interstate
shippers should bear $900 and the intrastate shippers
should bear $10. Now, what I'm saying is, the cost
was important for the commission to know. They needed
to know the total cost so that they could say, "Ah, 10
percent must be borne by the intrastate shippers; the
rates ... will allow them to collect $10."
They don't need to know the revenues collected on the
interstate side, because even if the FERC had only
allowed them to collect $800, that doesn't mean that
the RCA should increase the intrastate shipper's
burden by another $100. It doesn't matter what the
FERC actually ended up setting or requiring, because
it shouldn't adjust the intrastate side. All we need
to know is what the cost was and how much should be
allocated to those shippers. If FERC didn't allow the
interstate enough or, alternatively, too much, the
remedy is for the complaining shipper or the
complaining carrier to go to the FERC for that 90
percent.
REPRESENTATIVE KERTTULA said it still seems perhaps the revenue
is some evidence of what the true costs were. She indicated a
desire to move on, however.
Number 0795
MS. LEVY discussed Section 5 as follows:
Section 5 is really intended to try to address
concerns that the pipeline carrier be allowed to
configure its equipment and hardware in a way that
best provides the service, and that if it chooses to
[replace] some equipment, to remove something and add
something else, that it ought to be able to do so. ...
They have an incentive to operate efficiently, and we
want to promote that.
At the same time, the original language raised a
concern that ... a shipper or the state might not have
the opportunity to come in and say, "Gee, what you're
doing may permanently reduce capacity or changes our
transportation service." And so, we added ...
language here to clarify that, under those
circumstances, the carrier still has to go to the
commission. If they're permanently reducing capacity,
if they're reducing transportation services, they've
got to go to the commission.
Number 0696
MS. LEVY turned attention to Section 6 and said:
Section 6 addresses the interest rate and, as I know
... Chair Harbour from the RCA has said, this is an
area appropriate for a policy decision by the
legislature. The administration would support the
interest rate that's set here as five percentage
points above the 12th Federal Reserve District
discount rate in effect on each year for which
payments are due. And that language was used so that
there would be one interest rate that applied due to
the year in which the order came out.
Sometimes, as you all know, this rate litigation takes
many years. Interest rates might have gone up and
down. And it seemed appropriate to us that the
interest rates be determined under this mechanism for
each of those years, and the interest rate would apply
to those charges.
Number 0588
MS. LEVY addressed Section 7 as follows:
Section 7, in the original language, was unclear to a
number of folks. And the administration determined
that it could support and does support a statement
that an order setting rates [would] not affect rates
that were being charged before the date that the
protest or complaint was filed. We believe that's
what the existing statutes say. We've argued that to
the commission, and I hope they agree with us. But I
think all the parties agree that, if it said that, it
didn't say it real clearly, and so ... this would be
an improvement in language to clarify that ... once a
carrier is on notice that its rates are being
challenged, then that's the date that triggers the
time for which relief could be provided.
Number 0505
REPRESENTATIVE KERTTULA asked how far back a challenge can go.
MS. LEVY replied:
It can vary, but the protest usually is made promptly
within a tariff filing, within 15 or 30 days - and I'm
sorry I don't have the statutes in front of me to tell
you exactly. The commission can initiate an
investigation at any time. And a complaint can be
brought at any time, but ... it's only prospective in
its relief, but, again, prospective from the date of
the complaint or protest under this language.
REPRESENTATIVE KERTTULA asked, "So basically what happens is,
the rate set doesn't take effect and you file the protest, and
that's why it's prospective." She requested confirmation that
it isn't going backward.
MS. LEVY responded, "It's not going backward. The only thing
that would be going backward is, if it took four years to get an
order, the order would be applied backward to the date of the
protest or complaint."
Number 0386
MS. LEVY continued, turning attention to Section 8:
This is a new section added since the original House
Bill 277. The administration believes this is an
important provision that clarifies which agency is in
charge of filing pipeline tariff complaints before the
regulatory bodies, and that is the Department of Law.
And this would just simply codify the existing
practice that's gone on since the time we've had
pipelines in this state.
We also would encourage addition of the language that
the attorney general would consult with the affected
agencies because, as you know, Department of Revenue
is affected - their production taxes are determined in
part on the netback value. ... Certainly, the
royalties under the Department of Natural Resources
[are affected]. And this would clarify that that
process ... is the one that applies.
Number 0268
MS. LEVY addressed Section 9 as follows:
Section 9 is the applicability section. This would
provide that the provisions of the Act apply to
matters that are ... proceeding before the RCA on or
after the effective date of this Act. And that would
make clear that it does not apply to Order 151, which
is on appeal to the superior court at this time. So
it's not an attempt to undo what was set out in
Order 151.
REPRESENTATIVE KERTTULA sought confirmation that it would impact
currently pending cases if they were filed even before that
order was given.
MS. LEVY said that's right. She concluded by noting that
Section 10 provides for an immediate effective date.
Number 0041
CHAIR FATE recessed the hearing at 3:25 p.m. to a call of the
chair.
TAPE 03-39, SIDE A
Number 0001
CHAIR FATE reconvened the hearing at 8:30 p.m. Present were
Representatives Fate, Gatto, Heinze, Morgan, and Wolf;
Representatives Lynn, Kerttula, and Guttenberg arrived shortly
thereafter.
The committee took a brief at-ease at 8:31 p.m.
Number 0098
DAVE HARBOUR, Chairman, Regulatory Commission of Alaska,
Department of Community and Economic Development (DCED), noted
that he would submit formal written testimony but would speak at
this hearing personally to give a brief overview of the bill.
He then informed members that in January, a not-well-publicized
act took place: RCA executed a memorandum of understanding
[MOU] with FERC that provides additional clarity with respect to
resource development and transportation in Alaska. He read from
that MOU as follows:
The parties recognize that the conduct of their
responsibilities has and will in the future require
them to examine, regulate, or otherwise oversee the
same facilities or activities. The parties further
recognize the coordination of their efforts can result
in increased efficiency and cost savings to both the
public and regulated entities. In view of their
concurrent regulatory responsibilities for TAPS and
other Alaska pipelines, the parties contemplate that
joint or concurrent hearings may be advisable. The
parties further ... contemplate that absent joint or
concurrent hearings, the two agencies will coordinate
the timing of related decision making, et cetera.
Number 0445
MR. HARBOUR offered that since 1972, Alaska has had regulatory
certainty with respect to pipelines by virtue of the age of the
pipeline Act. He related his feeling that many of the proposed
amendments to the commission's jurisdiction over DR&R appear to
be driven by a concern that the RCA would add DR&R obligations
to those already agreed to between the carriers and the state,
the U.S. Department of the Interior, and private landowners. He
went on to say:
Although the RCA ... authority may seem like it's
broad under the pipeline Act, as your predecessors the
framers intended, I believe that the commission only -
and I can emphasize these two points more importantly
than any other tonight - I believe that the commission
asserts two areas of jurisdiction: (1) to ensure that
sufficient money is collected and available to
complete the DR&R obligations already agreed to by the
carriers with the state, the [U.S. Department of the
Interior], and private landowners; and (2) to ensure
that the DR&R is in fact completed according to those
agreements before permission is granted by the RCA to
abandon a pipeline.
Number 0582
MR. HARBOUR noted that RCA now handles dismantlement, removal
and restoration at several times during the life of a pipeline.
In setting initial rates, DR&R is a cost that must be recovered
in rates. The commission sets rates to ensure that adequate
DR&R is collected through tariff rates, and that the costs are
spread fairly among shippers throughout the life of the
pipeline. He also pointed out that setting rates for DR&R is
unlike rate setting for almost all other aspects of the
pipeline. He explained:
When setting rates, you can quickly understand and
document the costs of labor and of vehicles and
materials and facilities and those sorts of things.
DR&R, however, is a moving target. The regulatory
agency is obliged to work with the stakeholders to
determine what the actual cost of dismantlement,
removal, and restoration is expected to be way out
there at the end of the life of the pipeline, and then
update that for ratemaking purposes on a regular basis
as ... tariff changes and rates are requested. ... And
it's the only body that's in a position to do that
properly.
Number 0705
MR. HARBOUR discussed changes that would occur under the
proposed CS, as follows:
First, our jurisdiction over DR&R of pipeline
facilities is practically removed. Second, by not
allowing the commission to consider the amount of DR&R
collected in interstate rates of a pipeline that
transports both within the state and for export, the
bill makes it impossible for the commission to assure
that ... intrastate rates include just and reasonable
amounts for DR&R. And third, it removes but ... does
not resolve a number of ambiguities in [AS] 42.06.400.
...
The commission's jurisdiction ... right now is defined
in AS 42.06 and conforms to that of other regulatory
agencies. The legislature intended that the Alaska
Pipeline Act allow an objective, nonpolitical
commission to have broad regulatory responsibility.
[AS] 42.06.245, one of the portions of the Act
scheduled by this proposal for change, says, quote,
"nothing limits the powers of the commission set out
in this chapter except to the extent they are
preempted by federal law."
When considering the passage of [AS] 42.06.245, [then
Senator] Groh ... and his colleagues - the framers,
members of the legislative committee that proposed the
Act - said the state attempted to regulate to the
maximum extent possible but would have neither the
power nor ability if preempted by federal law.
Number 0859
MR. HARBOUR turned to the issue of fiscal clarity and said:
I'm going to conclude here by addressing the issue of
fiscal clarity. I talked about it a minute ago with
respect to our work with the FERC. One of the
speakers before [the House Special Committee on Oil
and Gas] on May 1, representing one of the oil
companies, made a statement that he supports this bill
because it helps correct many serious flaws that
currently exist in the Alaska Pipeline Act. He went
on to say ... these flaws are so significant, they
need to be addressed to ensure investment in risky
projects like the Alaska natural gas pipeline.
These are popular subjects to discuss, Mr. Chairman.
I'm going to suggest to you that I can probably
convince members, if there's time and interest
sufficient, that ... it [doesn't perform] that
objective. It makes cosmetic improvements, some of
which are helpful, but ignores a number of other
improvements that we - with the cooperation of
industry - would like to work on in the interim and
recommend as consensus legislation to the legislature
and the governor ... for competent treatment next
year. It creates a huge amount of uncertainty for
others.
Number 0988
MR. HARBOUR continued:
I want to give you an example on this certainty. In
the last year and a half or so - particularly, earlier
when the Alaska gas producers pipeline team was
seriously investing in the feasibility of an Alaska
gas pipeline, in frequent presentations - they pointed
out that four criteria were essential for a gas
pipeline. One was federal enabling legislation that
would enable any competent, qualified party to come in
and apply for such a permit - not just the earlier
franchisee, ... "the Foothills Group."
Number two, they proposed that federal incentives were
required and, as we speak tonight, in Congress those
incentives are being considered, namely, a floor price
guarantee for gas, et cetera. Thirdly, the producers
asked for certainty in Canada on rights-of-way,
particularly with regard to First Nation issues and
aboriginal rights-of-way. And tonight, those are
still issues. Fourthly, they requested fiscal
certainty in Alaska.
Number 1072
MR. HARBOUR continued:
In my career with the oil industry over the years with
groups like the Resource Development Council and
others, we often discussed fiscal certainty. ... We
never discussed fiscal certainty for some in the
industry at the expense of others.
We also discussed, frequently, regulatory reform and
improvement - streamlining. Earlier this evening, on
the floor, members were talking about streamlining the
regulatory process. The effect of this bill would be
to "unstreamline" the process and provide some
regulatory certainty for a few at the expense of
others.
Number 1150
MR. HARBOUR acknowledged that the Alaska Pipeline Act isn't
perfect. Noting that over the years there have been amendments,
some of which "provide some ambiguity that we have to deal with
at the commission level," he agreed that changes and
improvements can be made - but not this type of change.
MR. HARBOUR concluded by saying the RCA process itself isn't
flawed. He told the committee:
As an objective new member coming in about three
months ago and evaluating the process, I would like to
report to you tonight that ... the commissioners on
this commission have been doing precisely the work
that you expect them to do in an objective,
nonpolitical way, making their decisions based on the
record before them that all of these distinguished
opponents and advocates bring before us every day.
CHAIR FATE deferred questions to the next meeting and asked that
Mr. Harbour stay on teleconference.
Number 1263
JERRY GALLAGHER, Manager, Government Relations, ConocoPhillips
Alaska, Inc. ("ConocoPhillips"), noted that he was pinch-hitting
for Graham Vanhegan, vice president and general counsel.
Mr. Gallagher thanked Chair Fate and Representative Dahlstrom
for putting these issues on the table. Stating ConocoPhillips'
support for the proposed CS, he informed members that he would
testify about perceived misconceptions. He said:
We do not believe that this bill overturns RCA
decisions. This bill looks to the future. This bill
does not legislatively approve TAPS settlement
agreements. And this bill does not remove RCA
jurisdiction over establishing intrastate pipeline
tariffs. Rather, this bill is about certainty and
clarity of the RCA's process. It's about creating an
atmosphere in the future where companies, both big and
small, are clear about the rules they explore and
operate under ... and transport oil and gas.
Number 1394
MR. GALLAGHER continued:
We've also heard that this bill, in some way, seeks to
negatively impact the independents, the new entrants -
the smaller companies - in our business in Alaska.
And that is absolutely not true. ConocoPhillips very
much promotes the entry of new players, smaller
companies, new people, existing players in Alaska.
It's evidenced by our efforts recently, our work with
companies like Anadarko, EnCana, Forest Oil, Windstar,
[Pioneer] - they're our partners in projects on the
North Slope and in Cook Inlet - exploration projects,
development projects, projects on state land and on
federal land.
I do want to make a couple of limited comments about a
few portions of the bill, because it did change in
this CS. Section 1 is a new section proposed by the
administration further clarifying the role of the
commissioner of natural resources as being responsible
for [ensuring] compliance with pipeline leases. ... We
believe that's consistent with the intent of earlier
versions, and we support it. And we agree with the
administration that this current version does not
leave gaps in RCA ... in state jurisdiction of the
pipeline. The other amendments proposed by the
administration - the Sections 2, 3, and 4 - are also
acceptable to ConocoPhillips.
Number 1500
MR. GALLAGHER addressed Section 6 as follows:
I do have [a] few brief comments on Section 6.
Sometimes we end up in litigation. And litigation
sometimes ends up in orders and judgments that are due
with interest. The interest rate that applies to
judgments under the pipeline Act has always been about
the same rate that's been applied to other judgments
in the state. ... The interest rate ... was a
legislative decision in 1978 when the legislature
wrote that section of the Act, and we believe the 1997
tort-reform amendments also changed the applicable
interest rate on pipeline Act judgments.
However, at this time at the RCA, it is being argued
that the interest rates on the pipeline Act orders
were not changed. The amendments originally proposed,
in earlier versions of this bill, made it clear that
the legislature did not single out pipeline companies
for ... different treatment from every other business
entity. In other words, the rate in the other
versions was exactly the same as those rates paid in
other judgments that are issued by the state.
... The amendments proposed in this version [page 6,
Section 6] don't quite do that. They impose a
different rate. The rate imposed here in this version
is 5 percent above the federal rate, and the payment
mechanism is also being changed. We at ConocoPhillips
... need to fully understand that amendment - we just
saw it today, as you did, in the CS - and how that
would impact our business, and we're doing that now.
But I want to emphasize that ConocoPhillips supports
the [proposed House Resources Standing Committee] CS
that is before you and urge you to move this bill.
The committee took an at-ease from 8:51 p.m. to 8:52 p.m.
Number 1676
JIM DECKER, Senior Counsel, BP Pipelines (Alaska) Inc. ("BP"),
noted that Al Bolea, president, had asked him to testify in his
place. He told members:
BP supports HB 277 because it will help to provide the
certainty and clarity needed to invest in the
infrastructure necessary for continued oil and gas
investment in Alaska, infrastructure like the long-
lived Trans-Alaska Pipeline System. This pipeline is
the backbone of the oil and gas industry in this state
and, in fact, of this state. The bill provides a more
efficient state regulatory framework by reducing the
degree of overlap and redundant agency oversight, and
ensuring that the right regulatory skills are brought
to bear.
House Bill 277 helps to facilitate three very large
business priorities for BP, priorities that will have
enormous benefits to Alaska and to Alaskans. Let me
briefly describe them to you. First, preparation for
the next agreement on TAPS tariffs: the current
tariff agreement for TAPS is open for renewal
negotiations effective January of 2007. The
administration has asked the TAPS owners to reopen
negotiations now. A new agreement will set the stage
for future oil transportation on TAPS.
For these new tariff negotiations to be meaningful and
productive, all parties must be certain that the
agreement will be durable, that it cannot be rescinded
or undone at some point in the future. In today's
world, certainty does not exist due to deficiencies in
the Alaska Pipeline Act. Those deficiencies will
preclude a meaningful dialog between the TAPS carriers
and the state, in spite of the state's and our strong
desire to reach a new tariff agreement.
Number 1869
MR. DECKER continued:
When it was first introduced, House Bill 277 contained
provisions that address this specific deficiency. And
I would encourage this committee to ensure that the
legislation ultimately passed provides certainty that
a tariff agreement with the State of Alaska is of
lasting value - that it cannot be changed arbitrarily
at the behest of those who would opportunistically
seek to better their position, as Tesoro and Williams
are doing in challenging the existing tariff
agreement. Plainly put, we want to ensure that a deal
made today will remain a deal tomorrow and for the
full term of the tariff agreement.
Also, just to be clear, the legislation ... will not
overturn any existing orders of the Regulatory
Commission of Alaska relating to the ... existing
tariff agreement, nor will it ratify that tariff
agreement. But going forward into the future, it's
important, in a new tariff agreement, that we have the
level of durability that I indicated, and that it not
be undone. ...
Number 1936
MR. DECKER continued:
Second, reconfiguration of TAPS: as you know, TAPS
has served this state well for almost three decades.
The pipeline is sound, and we are looking forward to
the next 30 years of operation. But in order to be as
efficient and competitive as possible, we need to
invest hundreds of millions of dollars in new pump-
station technology over the next several years. These
new investments will provide lower tariffs as early as
2005.
House Bill 277 facilitates this effort by reducing
duplicative agency oversight and enabling a more
timely and efficient investment. Currently, the
flawed Alaska Pipeline Act language causes the
Regulatory Commission of Alaska to exert its authority
over areas already administered by the Department of
Natural Resources and other Joint Pipeline Office
agencies.
Third, an Alaska natural gas project: for many months
you've heard about this very big, very expensive, and
very risky project, that there are ... a number of
things required as prerequisites for it to ... move
ahead: capital-cost reduction through new
technologies, U.S. federal enabling legislation ...
and fiscal incentives to lower risk, continued
progress toward an efficient Canadian regulatory
environment, and a clear and certain [fiscal] and
regulatory regime in Alaska.
This last point is the single most important thing
that Alaskans can do to support the delivery of an
Alaska gas pipeline. This legislature and the
administration delivered an important part of this
when it passed the Stranded Gas Act several weeks ago,
which provides a framework for [fiscal] negotiation
between project sponsors and the state.
Number 2055
MR. DECKER turned attention to the bill:
That said, I will move to some specifics on the [House
Resources Standing Committee proposed] committee
substitute for HB 277, which BP, like ConocoPhillips,
generally supports. At Section 1 and 2, the bill
clarifies the role of DNR and the RCA with regard to
the state's oil and gas leases and its right-of-way
leases. It makes clear that the RCA's jurisdiction is
appropriately focused on intrastate issues. At
Section 3, it also delineates the RCA's authority with
regard to DR&R issues.
Earlier this evening, we heard Chair Harbour comment
on concern that if this legislation is put in place,
... the state could not consider DR&R collections that
are achieved through interstate tariffs. I would ...
refer the committee back to Jan Levy's testimony
earlier today in this regard where [Ms. Levy]
commented that ... if the RCA should go down this road
of considering interstate DR&R collections, it could
put itself in a place where -- let's assume that
interstate DR&R collections are viewed as insufficient
by the RCA. Then, ... is the answer of the RCA to
that, "Well, we need to increase DR&R collections in
the intrastate"?
If that's done, what you have effected is an
intrastate subsidy of interstate oil movement. It's a
path, from a policy standpoint, that should not be
gone down. Again, I would refer you back to Jan
Levy's comments of earlier this afternoon on this
point.
Number 2174
MR. DECKER continued:
I would also add to [Ms. Levy's] comments on
governmental oversight of the DR&R that, in addition
to the Department of Natural Resources, the federal
Bureau of Land Management [BLM] will oversee DR&R.
Under TAPS agreements with the federal ... Bureau of
Land Management, the BLM will oversee DR&R for the
entirety of TAPS - federal lands, state lands, and
private lands - as a matter of contract. In addition,
as [Ms. Levy] referred to, you have Environmental
Protection Agency [EPA] oversight and Alaska
Department of Environmental Conservation [DEC]
oversight with regard to their environmental merit.
There is a ... large amount of regulatory oversight of
DR&R.
With regard to Representative Guttenberg's question
... of Ms. Levy about financial security to cover the
DR&R obligation, I would add again to [Ms. Levy's]
comments that there are guarantees in place from each
of the TAPS owners to both to the Department of
Natural Resources and to the BLM to cover the DR&R
obligations. And under the recently renewed federal
right-of-way, the federal government will be ...
auditing the financial wherewithal of ... those
guarantors at least every three years over the next
30-year term. And, again, I would remind you that the
federal right-of-way covers DR&R as to the entirety of
the line.
Number 2279
MR. DECKER discussed concerns:
At the same time ... we generally support the
substitute from the administration, we do have some
concerns ... with the legislation. We would like more
clarity around what it means to "permanently reduce
capacity" as is referred to at Section 5.
Also, the bill has some ambiguous language in it,
which we'd like to see corrected. And I would refer
the committee to Section 4. And, frankly, it's the
same language that was the subject of a lot of
discussion, which pertains to allocation of costs
between inter- and intrastate service. This is
something that this committee grappled with for some
time this afternoon and, frankly, we've grappled with
it too. The explanation that Ms. Levy ... gave, I
thought, was quite good. But I think the language
could use a bit of work.
Number 2335
MR. DECKER continued discussing concerns:
Finally, the interest rate on refunds at Section 6
should be the same rate that is applicable to
judgments. This is the same thing you've just heard
from ConocoPhillips. There's no reason to
differentiate ... an interest rate that would be
ascribed to a refund from an interest rate that would
be due on a judgment.
There's also another technical point. The way the
substitute legislation would provide for an interest
rate is by ... replicating, within the statute,
interest language. And I think that is not a good
idea. I think the better way to do it is by referring
to the statute elsewhere in the law, outside of the
Alaska Pipeline Act, which provides for interest. By
doing that, we will have the use of case law behind
that statute in an Alaska Pipeline Act context.
Otherwise, if you replicate interest provisions
directly in the statute, ... the legislature and ...
those who are regulated under the Alaska Pipeline Act
could be cut off from those authorities.
Number 2435
MARK HANLEY, Public Affairs Manager, Alaska; Anadarko Petroleum
Corporation, noting that his company is a large independent,
told members the following:
The big issue for Anadarko is reasonable rates. We
really want to have reasonable rates. The cost of
shipping oil down a pipeline impacts the economics of
our prospects. We want to look for oil. The more it
costs us, the less economic our prospects are. ... And
we see the RCA as the agency who guarantees that
shippers and ratepayers have reasonable rates, so we
look at them as someone who protects that ability
[and] evaluates the issues that are out there to
ensure those rates are reasonable.
I would also say that access is a very big issue for
us. And some of you have heard me talk about access
to a gas line that may be built. I would say access
even to an oil line is very important to us. In many
respects, if you look through the statutes, the RCA
has the authority and the responsibility to make
interconnection policies ... and decisions on those
kind of issues. So for us, again, as a non-pipeline
owner, getting access to those facilities is very
important, and the RCA has an important role to play.
Number 2556
MR. HANLEY continued:
We are, as you heard earlier, ... partners with some
of the companies who've testified here and, in fact, I
would say ConocoPhillips is a very good partner of
ours. We're very happy about their generally
aggressive approach to exploration, which matches
ours. We are exploring with them in NPR-A [National
Petroleum Reserve-Alaska]. ... But there comes a
difference. We're partners in exploration; we are not
partners in the pipeline. We do have part of the
Alpine pipeline, but largely, the trans-Alaska
pipeline, ... we're not an owner of that. So in this
case, we are different from them. ... For instance, if
the costs are [shifted] to the transportation sector
in excessive rates, we don't get to recoup it through
... increased transportation recoveries, as would our
partner ConocoPhillips.
And, in fact, as I pointed out in other testimony,
there is a bit of an incentive to have excessive
transportation rates, because the way the state's
royalty is paid, ... the way you get back to wellhead
is to deduct those transportation costs. So
essentially, in rough terms, out of every dollar in
transportation costs that are above just and
reasonable, the state is paying 25 cents on the
dollar. So not only can someone make an immediate 25
percent profit on excessive rates, but they get a
competitive advantage over companies that can't
collect those monies through those transportation
costs because we're not pipeline owners.
Number 2620
MR. HANLEY continued:
Now, in December of last year, the RCA ruled that
transportation costs on the trans-Alaska pipeline for
intrastate rates were excessive: 57 to 70 percent too
high, a dollar to a dollar-fifty a barrel too high.
Those kinds of dollars make a significant impact to
companies like us. If we're paying those rates and
they're too high, it really affects the economics of
our fields. So, for us, it is critical that the RCA
have the ability to review those rates and determine
if they're just and reasonable. ...
MR. HANLEY referred to earlier suggestions that the bill creates
an atmosphere whereby companies will have certainty. He
disagreed, saying, "We're one of the other companies. We're a
new company, and I'm telling you, we have very much concern
about this bill. We think it creates uncertainty." He echoed
Mr. Harbour's comment that this may create fiscal certainty for
some at the expense of others and that it makes the process less
streamlined. He added, "Anything that removes the RCA's
authority to review those rates is a concern to us, because we
see them as protecting not only ratepayers in the state, but
shippers like us."
[Chair Fate interjected to suggest that Mr. Burden, calling from
a cell phone at an airport, be allowed to testify; Mr. Hanley
concurred with continuing his own testimony afterwards.]
Number 2799
GENE BURDEN, Senior Vice President of Government Relations,
Tesoro Petroleum Corporation, told members:
Tesoro, Williams, and Anadarko oppose this bill and
... have made that known throughout the process. And
it's interesting when you take a look at common
denominators in Alaska's development strategy and
interest in developing the state - its infrastructure,
creating jobs, and a balanced future for the state -
that a couple of things always come out. This has
come out in economic reports and reviews for years.
One is that Alaska really needs to stimulate value-
added businesses, and, two, we need to attract
independent exploration-and-production activities to
pick up production in fields that may no longer be of
interest to the larger oil companies. It's ironic
that ... the two largest successful illustrations of
value-added - that probably, combined, employ over
1,200 Alaskans - continue to attempt to convey our
serious concerns about this legislation, about what it
does to diminish the independent authority of the RCA,
what it does to raise the prospect of tariffs and
issues vital to our businesses and to the State of
Alaska, ... and tender those over to the state and to
the owners of TAPS to come up with agreements ... or
settle issues that impact us all. And it's not just
the value-added businesses in E&P [exploration and
production]; it's every Alaskan.
Number 2898
MR. BURDEN continued:
And ... I guess, in a sense, this is an issue of
fairness. I hear a lot of talk about wanting economic
certainty. I would suggest the TAPS owners have had
enormous economic certainty since the agreement that
they reached in 1987. RCA suggested that they've had
economic certainty to the tune of an extra $10 billion
in charges.
... In [the House Special Committee on Oil and Gas] I
commented on a common recurring statement that was
being made by proponents of this legislation. The
representative of BP repeated it tonight and, as
Ronald Reagan used to say, "There you go again." The
settlement that was reached on TSM expressly provided
for Tesoro, Williams, and others to seek just and
reasonable rates. ... And to continue to suggest that
... this effort by Tesoro and Williams - I believe the
term was "opportunistic" - is just rubbish. ... We
need to get beyond misrepresentation of the facts and
try to have the opportunity to have dialog on issues
that are pertinent ... to what's before this
committee.
MR. BURDEN referred to Mr. Harbour's testimony and agreed that
there are too many issues that need scrutiny in order to
understand the implication for the state to see this hurriedly
pushed through. He asked what the rush is. [Not on tape, but
reconstructed from the committee secretary's log notes, were
Mr. Burden's comments about wanting fair and reasonable rates,
and not wanting someone else to be setting those rates.]
TAPE 03-39, SIDE B
Number 2980
MR. BURDEN concluded:
This bill does still provide some backward look, we
think, ... that would have an impact on measures
already underway or that have been decided by the RCA.
... It's just not a bill whose time ... is here, in
our opinion, and we urge the committee to really take
a look at this ... and not hastily move this forward.
I realize there is tremendous political pressure in
regards to this, but the interests of the State of
Alaska, and the value-added components of the state as
well as the independent E&P companies, are really
impacted by the decisions made on this measure.
Number 2882
MR. HANLEY returned to his testimony. He expressed concern
about mention of wanting to add back in a section removed in the
[House Special Committee on Oil and Gas]. The original bill
allowed rates to be set via a settlement agreement between two
parties and the attorney general, with no public process, no
review, and no appeal; thus people who came in would have to pay
those rates. Mr. Hanley explained that, to his company, this
was the most onerous section of the bill. He expressed
appreciation that it had been removed, but reiterated concern
about bringing it back.
Number 2836
MR. HANLEY addressed comments made by the Attorney General
Renkes [before the House Special Committee on Oil and Gas]:
I would just like to point out a couple of things.
First, Attorney General Renkes testified on behalf of
the governor, the DNR, the Department of Revenue, and
the Department of Law at the last committee hearing,
and I'd just like to read a little bit, if I may, Mr.
Chairman. It said Section 9, which was the
retroactive interest-rate section, would make the
interest provision retroactive to '97.
Some have said the provision is unconstitutional. We
don't think that's correct, but we do believe at this
time we can't support it, as a matter of fairness. We
think the place to address the Order 151, which we
were just discussing, is in the appeal process and not
through this legislation. And so that section that
supposedly made interest rates retroactive, because it
did say they were retroactive to August of some time
in '97, was taken out.
I will tell you that I think the bill still makes
interest rates retroactive. I don't know that that
was the intent. I don't think that's what he said - I
don't think he said it was fair to do that, but I will
tell you, when you apply, in the very last section of
the bill, ... it says, "this Act applies to any
matters pending before the regulatory commission
involving pipelines or a pipeline carrier on the
effective date of this Act." So this bill will apply
to any matters.
Number 2772
MR. HANLEY continued addressing the attorney general's remarks:
My understanding is that this matter - on whether you
pay the 10.5 percent interest that is listed right in
the statue essentially now, or the other rate of
interest that was adopted during tort reform - is a
discussion and a case that is occurring before the RCA
right now.
So, if this bill is adopted, I believe that it will
impose whatever the interest rate is in this section
and tell them that that is the rate; it's an ongoing
case. ... I don't think that was the intent here,
because he said he did not believe it was a matter of
fairness to retroactively do that, but I believe that
that's what this bill does. So I just wanted to raise
that as a point of interest.
Number 2745
MR. HANLEY continued :
It's interesting that some of the other companies have
suggested they don't want retroactive ratemaking, and
yet the provisions of this bill are applying to ...
not just the interest rate; any rate case that's
pending before this legislation, it will apply to.
Now, if you don't want to be backward looking but
forward looking, as people have said, you would say
something to the effect that this bill only affects
cases filed after the effective date of this bill.
And I would suggest to you that if you're going to go
backwards, ... you might need to get a list of all the
cases and see how they'll be affected by this bill,
because you're going to retroactively change those.
... And I don't know that that's what was intended,
but I believe that is one of the issues that I think
is a concern.
Some people say, "Well, why does Anadarko care? ...
That's not your case." Well, ... in the future we
would hope that if you go into a case based on the
deal at the time - the statutes at the time - and you
win a case, that somebody doesn't come to the
legislature and try and change the deal retroactively.
... We just think it's a matter of fairness, as well,
as the attorney general said, and that these things,
if they're going to be applied, we can debate them
about the future, but should they apply retroactively
to Acts that are ongoing? I don't think so.
Number 2680
MR. HANLEY referred to assertions that the bill improves
clarity. He brought attention to Section 2, where it says the
commission shall regulate pipelines and pipeline carriers in the
state, with new language that reads "but only to the extent
applicable to the delivery of intrastate transportation
services". Noting that pipelines and pipeline carriers are
defined, he suggested for clarity that intrastate transportation
services need to be defined also. He continued:
I would just point out that in the statute, if you
look down further on page 3, one of the things that
the commission regulates is they require permits for
construction, enlargement, connection, and
interconnection. I've just posed a question because
now they're being told "only intrastate services". If
we find oil and we want to connect to a pipeline and
we're denied that, under the current system RCA will
determine whether that's appropriate or not.
Number 2614
MR. HANLEY continued:
It appears to me, because they can only deal with
intrastate services, that we are going to have to tell
people that the oil we produce is only going to go
intrastate. Otherwise, the commission doesn't have
the authority to deal with these interconnection
activities.
And I would suggest that, throughout the statute,
there are issues about whether two or more gas or oil
pipeline facilities should be constructed - these are
things that the RCA has the ability to determine,
whether it's in the state's best interest to duplicate
facilities.
If somebody comes in and says, "I'm only shipping my
oil out of state," that's not ... an intrastate
service. And I would suggest to you, with this
language, ... the argument would be that the
commission no longer has the authority, if we're going
to guarantee we're shipping our oil out of state. And
if that's not the intent, then it needs to be cleared
up. But I think it creates a problem in the statute.
...
Number 2570
MR. HANLEY continued:
I would suggest that the issue we're struggling over -
and I think other people have suggested does need some
work on - revenue collected on interstate
transportation: the commission ... can only look at
costs, not revenues. And I would suggest to you, it's
fairly complicated, and I do think it needs some
clarification. ... I think Ms. Levy ... suggested that
... they allocate the correct percentage across
intrastate versus interstate, and ... you look at
cost.
Well, the interesting thing is, it's one pipe. And
the amount for DR&R to remove that pipe - even if
everybody agrees with the costs, both on the federal
side and the state side - is a specific number. How
you allocate that gets pretty interesting. 50 percent
of it goes across state lands; should the state have
to collect, through intrastate rates, 50 percent of
it? I don't think that's the intent, but that's part
of the problem if you can't look at some of the rates.
... Mr. Harbour, in his analysis, suggests that with
this change in this language, it creates problems for
[RCA] and they may have to overcollect intrastate
rates. It concerns us. When we read that the
chairman of the RCA suggests that this language ...
could require them to overcollect intrastate rates,
that means that we're going to pay a higher rate than
we should. ... When we hear the people that regulate
and they say this language is a problem, we think it's
a problem.
Number 2471
MR. HANLEY noted that he had other issues that Mr. [Robin] Brena
would address. He concluded with the following:
I just want to leave you with the fact that we are a
producer. We're not a pipeline owner. ... We feel
like the RCA is there to protect the interests of
shippers, ratepayers, and even the state in this case,
and we think this bill actually goes too far. We
think it removes the authority of the RCA to do that
protection, and we think that puts us at risk. That
means it increases our risk of exploration in the
state, and that's why we're concerned.
Number 2410
CHAIR FATE announced that questions would be addressed when the
hearing continued on Friday [May 9]. [HB 277 was held over.]
ADJOURNMENT
The House Resources Standing Committee was recessed at 9:30 p.m.
[The meeting was reconvened May 9, 2003.]
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