Legislature(2007 - 2008)ANCHORAGE
06/16/2008 09:00 AM House RULES
| Audio | Topic |
|---|---|
| Start | |
| HB3001|| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB3001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RULES STANDING COMMITTEE
SENATE SPECIAL COMMITTEE ON ENERGY
Anchorage, Alaska
June 16, 2008
9:19 a.m.
MEMBERS PRESENT
HOUSE RULES STANDING COMMITTEE
Representative John Coghill, Chair
Representative John Harris
Representative Anna Fairclough
Representative Craig Johnson
Representative Ralph Samuels
Representative Beth Kerttula
Representative David Guttenberg
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyman Hoffman
Senator Lesil McGuire
Senator Donald Olson
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
MEMBERS ABSENT
HOUSE RULES STANDING COMMITTEE
All members present
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Kim Elton
Senator Lyda Green
Senator Fred Dyson
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Representative Bob Buch
Representative Harry Crawford
Representative Nancy Dahlstrom
Representative Mike Doogan
Representative Les Gara
Representative Berta Gardner
Representative Carl Gatto
Representative Max Gruenberg
Representative Mike Hawker
Representative Lindsey Holmes
Representative Kyle Johansen
Representative Scott Kawasaki
Representative Wes Keller
Representative Mike Kelly
Representative Bob Lynn
Representative Kevin Meyer
Representative Mark Neuman
Representative Kurt Olson
Representative Jay Ramras
Representative Bob Roses
Representative Woodie Salmon
Representative Paul Seaton
Representative Bill Stoltze
Senator Con Bunde
Senator Bettye Davis
Senator Fred Dyson
Senator Johnny Ellis
Senator Gene Therriault
Senator Thomas Wagoner
COMMITTEE CALENDAR
HOUSE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
SENATE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (H) READ THE FIRST TIME - REFERRALS
06/03/08 (H) RLS
06/03/08 (H) WRITTEN FINDINGS & DETERMINATION
06/04/08 (H) RLS AT 9:00 AM CAPITOL 120
06/04/08 (H) Heard & Held; Assigned to Subcommittee
06/04/08 (H) MINUTE(RLS)
06/04/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/04/08 (H) Heard & Held
06/04/08 (H) MINUTE(RLS)
06/05/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
06/05/08 (H) Heard & Held
06/05/08 (H) MINUTE(RLS)
06/06/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/06/08 (H) Heard & Held
06/06/08 (H) MINUTE(RLS)
06/07/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/07/08 (H) Heard & Held
06/07/08 (H) MINUTE(RLS)
06/08/08 (H) RLS AT 1:00 PM TERRY MILLER GYM
06/08/08 (H) Heard & Held
06/08/08 (H) MINUTE(RLS)
06/09/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/09/08 (H) Heard & Held
06/09/08 (H) MINUTE(RLS)
06/10/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/10/08 (H) Heard & Held
06/10/08 (H) MINUTE(RLS)
06/12/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/12/08 (H) Heard & Held
06/12/08 (H) MINUTE(RLS)
06/13/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/13/08 (H) Heard & Held
06/13/08 (H) MINUTE(RLS)
06/14/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
06/14/08 (H) Heard & Held
06/14/08 (H) MINUTE(RLS)
06/16/08 (H) RLS AT 9:00 AM ANCHORAGE
BILL: SB 3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (S) READ THE FIRST TIME - REFERRALS
06/03/08 (S) ENR
06/03/08 (S) REPORT ON FINDINGS AND DETERMINATION
06/04/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/04/08 (S) Heard & Held
06/04/08 (S) MINUTE(ENR)
06/05/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
06/05/08 (S) Heard & Held
06/05/08 (S) MINUTE(ENR)
06/06/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/06/08 (S) Heard & Held
06/06/08 (S) MINUTE(ENR)
06/07/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/07/08 (S) Heard & Held
06/07/08 (S) MINUTE(ENR)
06/08/08 (S) ENR AT 1:00 PM TERRY MILLER GYM
06/08/08 (S) Heard & Held
06/08/08 (S) MINUTE(ENR)
06/09/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/09/08 (S) Heard & Held
06/09/08 (S) MINUTE(ENR)
06/10/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/10/08 (S) Heard & Held
06/10/08 (S) MINUTE(ENR)
06/12/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/12/08 (S) Heard & Held
06/12/08 (S) MINUTE(ENR)
06/13/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/13/08 (S) Heard & Held
06/13/08 (S) MINUTE(ENR)
06/14/08 (S) ENR AT 10:00 AM FBX Carlson Center
06/14/08 (S) Heard & Held
06/14/08 (S) MINUTE(ENR)
06/16/08 (S) ENR AT 9:00 AM ANCHORAGE
WITNESS REGISTER
J. MARK ROBINSON, Director
Office of Energy Projects
Federal Energy Regulatory Commission (FERC)
Washington D.C.
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
JEFF WRIGHT, Deputy Director
Office of Energy Projects
Federal Energy Regulatory Commission (FERC)
Washington, D.C.
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
MARK JOHNSON, Commissioner
Regulatory Commission of Alaska (RCA)
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
JANIS WILSON, Commissioner
Regulatory Commission of Alaska (RCA)
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided comments and responded to
questions during the day's presentations.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the joint meeting of the House
Rules Standing Committee Subcommittee on AGIA and the Senate
Special Committee on Energy to order at 9:19:17 AM.
HB3001-APPROVING AGIA LICENSE
SB3001-APPROVING AGIA LICENSE
9:19:24 AM
CHAIR HUGGINS announced that the first order of business would
be a presentation of the Federal Energy Regulatory Commission
(FERC) process.
9:21:47 AM
J. MARK ROBINSON, Director, Office of Energy Projects, Federal
Energy Regulatory Commission (FERC), introduced Jeff Wright,
Deputy Director of the Office of Energy Projects (OEP) for the
Federal Energy Regulatory Commission (FERC). Mr. Robinson
explained that the OEP is responsible for the maintenance,
operation and licensing of 1,600 to 1,700 hydroelectric projects
throughout the country; the authorization and operation of the 6
or 7 liquefied natural gas (LNG) facilities, and several LNG
projects that are under construction. He further explained that
OEP is responsible for siting gas storage facilities throughout
the country, typically along the East coast and the Gulf of
Mexico. Additionally, he stated that the OEP is responsible for
citing transmission lines, such as a 500 kV line between
California and Arizona. Finally, the OEP is responsible for
stipulating natural gas pipelines. He related that OEP provides
the "steel and concrete" at FERC, to ensure adequate
infrastructure and that the infrastructure is maintained and
operated in an appropriate fashion. He touched on two points,
first that the OEP is ready to process an application. Second,
"the gas world is changing."
9:23:49 AM
MR. ROBINSON characterized his bias as "to see energy from the
ground up" as opposed to "from the consumer back." He opined
that a person's bias results in different answers to the same
questions and same set of facts. He noted that people who see
projects from the "consumer back" tend to think of the "tail
end" incentives, or "How can we provide an incentive from 'way
out on the pay back' to get something built?" However, someone
who sees infrastructure "from the ground up" views it from the
perspective of, "How are we going to get somebody to spend the
'first dollar'?" He related that discussions are held on plenty
of projects, but this is different from projects for which the
money is being spent. He elaborated that OEP does not make
projections on the price of gas in 20 or 30 years. Instead, the
OEP tracks actual expenditures in the U.S. to provide the best
indicator of energy trends. He related that he personally
learned this lesson in Alaska, when in the early 80s he was the
environmental impact manager for the Susitna Hydroelectric
Project. He stated that at that time, five economists all
projected $100 per barrel oil in six months to five years. He
pointed out that the economists who predicted $100 per barrel
oil prices were berated in 1982. He recalled oil prices were at
$12 per barrel in 1983, which was the opposite of the
economists' projections at the time. He continued:
The lesson I learned, and it's been repeated a hundred
times through the remainder of my career has been that
it's real hard to predict what things will happen with
the cost of energy, or where energy is going to come
from. You just have to live it and you have to react
to it in 'real time.' That's the world I live in.
And I make judgments and answer questions based upon
what I see right now as I live through it not what I
think is going to happen 10 years from now. I just
haven't had a lot of success in doing
that...identifying biases.
9:27:14 AM
MR. ROBINSON related that FERC is ready and that "our process
works." He offered that FERC has placed 12,000 miles of large
diameter pipe in the United States (U.S.) since 2000. For
comparative purposes, he noted that the number of miles of
transmission lines in the Lower 48 that has crossed state lines
since 2000 is 668 miles or 14 total segments. He reiterated
that FERC has a process is a transparent, thorough, and tested
process that performs well.
MR. ROBINSON referred to his PowerPoint presentation slide
labeled, "Alaska Natural Gas Pipeline Project FERC's
Environmental Review Process". He noted two areas of interest.
The first portion of the slide shows the timeline for the pre-
filing review and application preparation, and the second shows
the statutory time limits for environmental review and FERC
action. He explained that the pre-filing process developed by
FERC has been in effect since 1995 and has been used at the
state level throughout the Lower 48. He offered that the
Congress requires this process for all LNG terminals. He
elaborated that FERC pre-filing process involves all
constituents at the earliest stage of the decision who become
vested in the development of the application. He highlighted
that FERC never advocates for a project. Instead, FERC
advocates for the process of a project. Mr. Robinson opined
that that this approach involves the parties to make joint
decisions to shape the application into the best possible
project. He explained that the next phase of the project is
depicted in the second bar on the slide, during which the
project is evaluated, judged, and assessed by FERC to determine
if it is in the public interest. He stressed that FERC is
"deeply involved" with the development of an application in the
pre-filing process, but only to the extent that it works to
create the best possible project before evaluating whether it
makes sense to proceed with the project. He offered attributes
to the pre-filing process such that FERC begins scoping the
project with the agencies as the project is developed in order
to ensure that the agencies are assisting in identifying EIS
issues to implement the National Environmental Policy Act. He
further offered that FERC prefers to resolve issues as they are
identified. He recalled previously an issue would arise and
would become embedded in the agency's data storage system.
Thus, the issue would "pop up" at every stage of the project's
process. However, he surmised that when an issue can be
resolved during the pre-filing stage, only the current issues
remain for FERC commissioners to consider and evaluate. He
characterized the primary benefit of the pre-filing process as
"separating the wheat from the chaff." He recapped the pre-
filing process as "getting everyone together, making them work
together, solving the issues, getting them out of the way, and
you are left with is what is significant."
9:33:03 AM
MR. ROBINSON reviewed the internal FERC application process. He
explained that once FERC receives an application that
collectively OEP's job is to create a record with
recommendations that can withstand any challenge. While EIS's
have been challenged in his 30 year tenure, he stated that FERC
has never lost an EIS case. He opined that the process works
"for everyone, not just the applicant, but also the states, the
federal agencies, and the non-governmental organizations."
Further, he highlighted that the non-governmental agencies
support FERC process.
9:34:22 AM
MR. ROBINSON referred to the second slide labeled, "Alaska
Pipeline Timeline," and projected that if the pre-filing process
for a pipeline applicant began in June 2008, that FERC would act
by August 2011. If an applicant does not begin the process very
soon, the loss of another field season could set the project
back a year, he opined. He noted that the critical path "for
gas to flow in Alaska" begins with the pre-filing process. He
acknowledged the legislature has spent a lot of time discussing
the open season and how that process will work. He offered to
answer questions, but stressed that from FERC's perspective it
is critical to start the pre-filing process in order to identify
the issues surrounding the project.
MR. ROBINSON asked to spend a few minutes to discuss the "state
of gas." He offered that what makes a difference in "how real a
gas find is" at the time the investments are made. He opined
that companies don't invest $1 billion or $2 billion into a
project without having "something you can put in that pipe."
Thus, he stressed the importance of "watching where the money
goes" with respect to the how a gasline project will fit into
the development of the growing world market on natural gas. He
related that "lots of gas is out there" with discoveries of
proven reserves of 61 hundred trillion cubic feet of gas (Tcf)
largely due to oil exploration. He estimated that the Cutter
field [Shell U.K. LTD's field in the southern North Sea]
contains 900 trillion cubic feet (Tcf) of unassociated gas that
is a proven reserve. He said, "The trick is monetizing that gas
in the world market." He referred to investments in shale gas
extraction ranges from the Barnett oil shales in North Texas,
which he said is a 3.7 Bcf/d field projected to go as high as 9
Bcf/d; the Fayetteville shales in East Arkansas estimated at
about 1 Bcf/day. He further related that "lots of big projects"
are being produced on the East Coast of the U.S. including the
Marsalis shales in West Virginia and Pennsylvania. He advised
that infrastructure is currently being built. He offered that
many countries are able to finance projects, even unlikely
countries such as Nigeria - which is in the process of building
a $3 billion liquefaction facility. He pointed that currently
the only country that is having difficulties in attracting
investments is Iran. He opined that Iran will need foreign
investment in order to bring its gas to market. Otherwise, he
noted, everyone else is developing infrastructure to provide gas
for a world market. He said, "It changes the face of the gas
world on an almost daily basis."
9:42:26 AM
MR. ROBINSON referred to the Arctic region and related that the
Snøhvit field in Norway has been developed. However, Snøhvit is
currently shut down to address some issues due to the Arctic
environment. He noted that FERC will need to "take a hard look
at exactly how we're going to get that gas in the pipe and down
to the market." He opined that Alaska among the gas fields is
probably in the best "posture of any of them" to come to market
due to its experience and existing corridor and infrastructure
in place, in large part, that can "piggy back" and bring gas to
market. However, he urged that in order to tie this all
together, that Alaska will need to "spend that 'first dollar'"
to pre-file and take advantage of that position to begin the
necessary field studies. He maintained that FERC "stand ready"
and has the experience and process that will work for everyone.
9:45:19 AM
SENATOR THOMAS, with respect to the Arctic gas issue, asked
whether Mr. Robinson is referring to the conditioning plant that
may be difficult, or if he could identify what specific concept
or ideas that compare with Snøhvit that may cause problems.
MR. ROBINSON answered that the issue is due to the conditions in
the Arctic region. However, he noted that FERC commissioned an
LNG facility in the Gulf [of Mexico] and despite planning and
engineering that things don't always work well. While he
acknowledged that Alaska has construction experience in the
Arctic, he offered Snøhvit as an example to illustrate problems
can accentuate and can "really go bad quickly."
9:46:43 AM
REPRESENTATIVE FAIRCLOUGH inquired as to whether Mr. Robinson
could address the matter of FERC review for a license if Alaska
only has 2 Tcf of gas available. She posed a scenario in which
a licensee came forward without committed gas reserves. She
noted that Prudhoe Bay has 2 Tcf available, but that the
TransCanada proposal is based on a 4.5 line.
MR. ROBINSON answered that FERC reviews the sizing of a project
and that FERC's engineers will determine whether the project is
properly sized for gas volumes. However, he explained that the
OEP will create the record and make recommendations to the five
FERC commissioners, who are appointed by the President of the
United States and confirmed by the U.S. Senate, and who will
ultimately make any decisions. He offered that historically the
commission has recognized that the country needs infrastructure
and that the commission has accepted sizing that has been larger
than what has been required. Therefore, the commission could
potentially authorize a pipe for a smaller volume than
requested, he noted.
9:49:26 AM
REPRESENTATIVE FAIRCLOUGH inquired as to whether the commission
has ever awarded an application or recommendation for a pipe in
the ratio for a 4.5 Bcf line with only 2 tcf "willing to come
down the line."
MR. ROBINSON replied that the commission has never authorized a
4.5 Bcf pipe.
JEFF WRIGHT, Deputy Director, Office of Energy Projects, Federal
Energy Regulatory Commission (FERC), offered that under its
previous certificate policy a pipeline could be certificated for
as little as 20 percent of the capacity contracted, which FERC
has previously authorized. He pointed out that under its most
recent pipeline policy which came into effect in 1999, contracts
are not required as "proof of need to come into FERC." However,
when FERC approves a project, it requires as a condition of its
approval that until the contracts are acquired, that "you cannot
break ground." He explained that contingency is due to
environmental sensitivity. He offered that the risk of under
recovery is on the pipeline, not on "the people who ship the
gas, or who buy the gas."
9:51:45 AM
SENATOR WAGONER inquired as to how FERC interfaces with the
National Energy Board (Canada) (NEB) on projects that transports
product through both countries.
MR. ROBINSON noted that FERC has adopted a memorandum of
understanding (MOU) with the NEB. He offered that FERC meets
with the NEB three times a year on cross-border projects. He
further offered that FERC has fostered similar relationships
with Mexico's Commission for Regulatory Energy (CRE). He
characterized FERC's relationship with the NEB as an extremely
good relationship.
MR. WRIGHT pointed out that the Alliance pipeline is a major
example of cross border cooperation.
9:53:20 AM
SENATOR STEDMAN inquired as to how many certificates have been
issued without any commitment to fulfill the gas shipment since
the project under consideration is somewhere between $20 and $40
billion.
MR. ROBINSON answered that neither he nor Mr. Wright have a
recollection of a project being authorized that did not have
some portion - usually 50 [percent] or above - of firm
commitments for gas transportation. Although no requirement
exists, FERC must weigh its desire to have infrastructure in
place against the possibility of some infrastructure being
started that "has some Ramuel effects and there's no benefit
since nobody ever ships gas."
MR. WRIGHT reminded committee members that while FERC staff
makes recommendations, FERC's commissioners are free to make
decisions based on what they think is best for the project and
for the nation.
9:55:19 AM
SENATOR STEDMAN relating his understanding that if a project is
not fully subscribed, that the entity building the gas incurs
the liability to handle the issue [of full capacity], not "the
folks that are shipping the gas."
MR. ROBINSON opined that it would be hard to imagine that a
project of this magnitude could be constructed without having
volumes under firm contract to pay for the pipe. He further
opined that ultimately the shippers and their contracts would be
held liable. He offered that the financial institutions will
determine whether or not it can provide the financing and will
evaluate the relationship between the volume of the pipe and the
pipeline owner, construction costs to build the pipe, and the
return based on the contractual costs of the shippers.
9:57:38 AM
SENATOR THERRIAULT related his understanding that shipping rates
are set based on full shipping capacity. He asked for
clarification of shipping rates. He posed a scenario in which a
shipper bids on 50 percent of the pipe's capacity and the
remaining 50 percent is not filled. He inquired as to whether
the shipper would only pay for the 50 percent that was bid.
MR. WRIGHT answered that Senator Therriault is correct. He
further explained that the shipper would not be responsible for
any shortfall in contractual volumes. Instead, the shipper
would pay the fair rate based on the capacity of the pipeline.
SENATOR THERRIAULT inquired as to the debt equity rate promised
through AGIA. He related his understanding that FERC's usual
practice is to accept a pipe's actual capital structure for rate
making purposes as long as it is within a "zone of
reasonableness."
MR. WRIGHT agreed with Senator Therriault.
SENATOR THERRIAULT related his understanding that the "zone of
reasonableness" is determined by examining other pipeline
projects.
MR. WRIGHT concurred.
SENATOR THERRIAULT further related his understanding that some
pipelines have equity of up to 60 percent, noting that the
Rockies pipeline has equity of 55 percent. He inquired as to
whether the equity would be considered to determine the "zone of
reasonableness."
MR. WRIGHT answered that FERC also evaluates risk in terms of
projects that are similar in terms of risk. He pointed out that
the TransCanada gasline is a highly risky project as opposed to
a Rockies project due to the availability and accessibility of
the gas in the Rockies project. He further noted the Rockies
project is a $2 billion project. He opined that the risk
factors to assess the proper debt equity ratio would be
different for a $30 billion project.
SENATOR THERRIAULT inquired as to whether FERC's general "rule
of thumb" is to focus on the "zone of reasonableness." He
further inquired as to whether FERC would determine that it is
too much equity specifically.
MR. WRIGHT replied that he did not think that "there is a
handbook" per se to identify the debt equity ratio of a project.
However, he offered that experienced personnel in the rate
section would make a proper determination.
SENATOR THERRIAULT offered his understanding that AGIA license
provides the state an agreement from the pipeline company
license that the equity would be 30 percent, with 70 percent
debt which makes a difference in the tariff of about a dollar.
He pointed out that many are concerned that TransCanada has
suggested it initially desires a rate of return of 14 percent.
He related his understanding that if [the rate of return] goes
up two percent or down two percent that would affect the tariff
by about 25 or 26 cents. Thus, he surmised that it is very
meaningful that the debt equity agreement the state would have
through AGIA is a dollar on the tariff. He inquired as to
whether the rate the state achieves through AGIA would be
beneficial to Alaska.
MR. ROBINSON offered that he and Mr. Wright are expert in FERC
process and can offer explanations on the review process. He
opined that neither of them would comment for or against a
particular position. He said that he emphasized early on that
FERC does not make projections on the value or the cost, but
solves problems as they arise. He opined that others can make
decisions based on predictions, but reiterated "that's not how
we do it."
SENATOR THERRIAULT said:
But, clearly because of this zone of reasonableness
you could have a pipe approach you and ask for a much
higher equity interest in the pipe, which would drive
the tariff up and could very well be approved. But,
if we have a partner that agrees to a lower equity,
that's going to be taken into consideration.
MR. ROBINSON responded that FERC would "absolutely take it under
consideration."
10:02:59 AM
SENATOR BUNDE inquired as to whether a $30 billion project could
be competitive.
MR. ROBINSON answered that he cannot make a prediction. He
opined that at the point when the final investment decision
(FID) is when someone will need to take "the hard look" and say,
"Yes, we think we can sell the gas and make the money back." He
noted that the FID [for the gasline] is too far out to make a
determination.
SENATOR BUNDE inquired as to whether it would be reasonable to
assume that delays would have a negative impact.
MR. ROBINSON related that FERC has made it clear in its reports
to the Congress that "we felt like there was a need to move
forward as quickly as possible." He continued:
There's so much money going into the ground in other
places to bring so much gas to play that at some
point, given the cyclic nature of how gas is worked in
the U.S., that you go periods where there is too much
gas and periods that there's not enough gas, and that
is not based upon how much gas is in the ground.
That's based on how much infrastructure has been put
into place.
MR. ROBINSON explained that in 2000 the U.S. imported 0.2
Bcf/day of LNG. Last year, he noted the U.S. imported 3 Bcf/d.
He explained that during that timeframe "money went into the
ground to bring North American import capacities up to 20 Bcf/d
by 2010." He stated that the infrastructure is in place, "the
money has been spent," the gas exists, and that worldwide, 17
MMcf/day of new liquefaction capacity is under construction. He
noted that the gas will supply some demand. He said, "At any
point in time when there's a need for gas; it's best to move
then."
SENATOR BUNDE asked whether FERC would view competing proposals
as positive or negative.
MR. ROBINSON said:
Well, there is a personal answer and a professional
answer to that. I'm responsible for the use of the
resources. I've got 315 engineers and scientists and
probably another 150 contract engineers and scientists
that I have to direct to where I think it is
appropriate to use them. Personally, I would love, if
we have one application. Professionally, that doesn't
happen. I've had many instances where I've had
multiple projects proposed to serve essentially the
same need and the commission, I think, quite wisely
over the past 20 years has developed and held very
firm under a lot of pressure to maintain the posture
that we will entertain all the applications that come
in and evaluate them. And determine if they're in the
public interest, and if they are, to authorize them
and let the market decide which particular project is
going to be built. Having said that, every state I go
to says, 'we're different.' Every state, and I've
done infrastructure in just about every state.
MR. ROBINSON noted that Alaska is different. He opined that
aspects of this project and this development make it less
predictable than other projects. He noted that Alaska has
legislative history, has had interactions with those principals
trying to develop gas. He offered that some commissioners that
will make the decisions have not yet been appointed since the
commission will make its decision in August 2011 or later. He
stated that FERC will have to make the decision at the time of
investment.
10:08:14 AM
SENATOR MCGUIRE inquired as to whether Mr. Robinson views any
downside to pre-filing.
MR. ROBINSON responded that it would be a downside if the
company that pre-files is not ready and is denied by FERC.
However, he noted that if the applicant that is serious about
the project and is willing to spend the money to make it happen,
that there are no downsides.
SENATOR MCGUIRE offered a hypothetical situation in which a
conglomerate - two of the three major producers - is serious
about a gasline project, has the ability to finance the project,
and has the experience. She inquired as to what would prevent
the group from pre-filing.
MR. ROBINSON answered that he would answer specifically. He
said that he advised the [Denali Project] to start pre-filing as
soon as possible and that the group is currently working on pre-
filing.
SENATOR MCGUIRE asked how long that process would take.
MR. ROBINSON answered that the best-case scenario would be that
studies will be undertaken that would only take one season to
complete. However, he stated that the OEP is planning on two
summer seasons to complete the studies and the project
engineering. He related that information is not available on
the size and cost of the proposed project yet since it is part
of the pre-filing process. He projected that it will take 18
months for pre-filing, although the OEP will advise the
applicant when the pre-filing is completed and whether the
application can be filed.
SENATOR MCGUIRE referred to Senator Bundy's earlier question
with respect to the weight that FERC would give to two
applications. She inquired as to the weight that FERC will give
AGIA.
MR. ROBINSON responded that the OEP will evaluate the
application it receives. He explained that his staff does not
review the applicant's decision making process or board room
discussions leading up to its application. However, the OEP
evaluates applicants from that point forward. He related that
benefits are derived from any consensus. He said, "Major
projects are tough. They are really tough to get done. The
greater the consensus that any area has on what should be done,
the higher the probability that it will ultimately be
successful." He surmised that it is pretty easy to disrupt a
big project. The more that people coalesce, the higher the
probability that the project will be built and the gas will
flow, he opined.
10:14:54 AM
CHAIR HUGGINS asked for clarification on the group that Mr.
Robinson urged to pre-file, noting that he assumes that he was
referring to the Denali Project.
MR. ROBINSON agreed. He then explained the FID process is the
point in time in which the project managers seek financing to
build a project. He characterized the FID as the "real decision
making point." He offered that FERC does not build anything,
but allows projects to "go find out" if they can build a project
and that [FERC] typically works with the investment community to
"see if the money is going to flow to them or not."
MR. WRIGHT explained that some projects "fly through FERC
process," and reach the FID point, but the market disappears and
the project doesn't come to fruition. He said, "Just because
our commission approves a project does not put it in the
ground." He related that the market driven nature of the
process ultimately decides what gets built.
10:17:10 AM
SENATOR ELLIS related a question on behalf of a constituent
regarding the timing of oil and gas development. He asked, "How
many billions of barrels of oil will FERC allow to be sacrificed
by the premature withdrawal of gas from Prudhoe Bay when the gas
can be had when oil production is complete?" He further asked,
"Will FERC require hard factual data of the amount of oil
remaining in Prudhoe Bay before allowing the withdrawal of gas -
which he believes will sacrifice oil recovery?"
MR. ROBINSON answered that these questions are typical of the
questions that FERC receives during its process. He further
answered that the OEP will assess the issues. He offered that
the OEP will give questions like these the analysis needed in
order to respond to the question. He further offered that OEP
proactively encourages people to ask those kinds of questions.
He specifically answered, "I obviously do not know the answer to
that." He elaborated that the OEP will assess the questions,
provide the technical expertise to find out if some aspect of
that has merit and will affect the public interest determination
on whether the project should be authorized, or if a pipeline is
authorized, what size of pipeline should be built. He offered
to find out.
10:18:58 AM
REPRESENTATIVE HAWKER inquired as to whether it makes any
difference to [FERC] if one applicant indicates that it is
licensed by State of Alaska and nobody else holds a license.
REPRESENTATIVE ROBINSON responded no, that it does not change
the process. He explained that FERC would still evaluate any
applications that come to it. He said he does not know what the
license would mean to "a sitting commission" and if it would
have any bearing on FERC's ultimate decision. He answered that
with respect to record development it would not have a bearing.
REPRESENTATIVE HAWKER recalled that some conclusions in the
final FERC report were highly critical of any proposal that
might come before FERC "without gas."
MR. ROBINSON recalled that he was quite familiar with the
comment and said he could almost quote it since he recalled
crafting the comment. He paraphrased that if FERC had a
proposal that came without any agreements, "That would not be
the best thing." He opined that the commission would rather
have the agreements in place so it can move forward.
REPRESENTATIVE HAWKER explained that the legislature has before
it the decision on whether to license a process [with
TransCanada.] He speculated that the project would likely come
before FERC without gas and that the state would then subsidize
[the project] to ensure that the process continues. He inquired
as to how much influence the state has on the process.
MR. ROBINSON said:
The state has a significant role to play, but it is
one of many roles in FERC process. The FERC has to
develop the record on the issue and the state will
make a position known. Somebody else will make
another position known. And it really boils down to
where the facts are, what the record says, and how our
five commissioners at that time, might interpret those
facts and that record to reach their decision. Me
personally: Infrastructure is politically the most
sensitive issue that happens at FERC, believe it or
not, because it directly affects constituents. We get
more Congressional letters on infrastructure issues at
the commission than everything else combined. It's
not hard to understand why, when you look at putting a
pipeline through some school yard or something.
People get upset. In 30 years of placing
infrastructure to the commission, with all the
different commissioners and different chairmen that
I've worked directly for, every time a chairman or
commissioner asked me to make a finding anywhere,
finding this or finding that or recommending this or
recommending that; I've had them get all over me
about time; that's fair game and it's happened over
and over again. Politically, things go on, but we are
an independent regulatory agency. I protect our
record-making process to the fullest. Because in my
mind, that's the only way that the commission, when
they do make those decisions, they can be protected,
at that time. We'll give everybody's position a full
treatment and a full exposure and an assessment of
what's going on and then the facts will lead us to
where we need to be.
10:24:03 AM
SENATOR WIELECHOWSKI asked the process FERC would take to review
two competing proposals, with one proposal being proposed by a
consortium of producers and another by an independent producer.
MR. ROBINSON responded that he thought the process for record
development works effectively, irrespective of the applicant, so
long as the applicant is serious about moving project forward.
He said, "That's the key thing for us."
SENATOR WIELECHOWSKI recalled earlier testimony that an
independent producer is more likely to have open access. In
fact, one of the provisions contained in the AGIA addresses
access issues, he noted. Additionally, other testimony
indicated that producer-built pipelines are less likely to have
expansions. He asked if these issues are addressed by OEP in
its analysis of a project.
MR. ROBINSON answered that commissioners might bring that to
bear during their review of a project. However, he noted that
considering open access is not part of the process that the OEP
uses in record development.
MR. WRIGHT interjected that pipeline ownership and access
considerations are not necessarily part of the environmental
review or the siting process at FERC. He said, "As long as
they're serious, they've done their homework, and are ready for
pre-filing, we're not going to turn them away."
SENATOR WIELECHOWSKI inquired as to whether the federal
government would allow LNG to be piped to Valdez and shipped and
overseas to an Asian market or another market.
MR. ROBINSON answered that what Senator Wielechowski described
would be authorized by commission, but the export license is
issued by the U.S. Department of Energy and would entail a
decision about allowing export of Alaska natural gas to foreign
markets. In further response to Senator Wielechowski, Mr.
Robinson said that he could not speculate on the DOE's answer.
10:27:08 AM
The committee took an at-ease from 10:27:21 AM to 10:46:36 AM.
10:47:04 AM
REPRESENTATIVE KELLY referred to open access, basin control
issues, and anti-trust concerns with a producer pipe that has
biennial open seasons. He inquired as to who is concerned about
the [open access and expansion issues] in this process.
MR. ROBINSON answered that expansion was contemplated in Section
105 of the Alaska Natural Gas Pipeline Act of 2004 (ANGPA)[ 15
U.S.C. §§ 720 et. seq.]. He said that the Act contemplates
expansion in instances in which the pipeline operator "didn't
see a need to come to FERC in a voluntary fashion." He opined
that Section 105 is a unique section, which allows the
commission to conduct a hearing "with all the bells and whistles
entailed to require expansion." He further opined that a
tension exists for the Congress and the commission to attempt to
satisfy the certainty of having a pipeline constructed as soon
as possible and the desire to ensure that sufficient expansion
paths will allow for exploration and development of the entire
basin to enhance gas extraction. "That is a very tough balance
and challenge to meet. I feel confident that FERC process would
allow that to occur," he said. However, he noted that other
approaches could also satisfy that balance. He pointed to
Alaska's efforts to develop a relationship with an applicant
that allows for periodic open seasons. He opined that the
process would "no doubt work as well." Both approaches provide
mechanisms, perhaps contractual, that would balance the desire
to get a pipe built and allow for future expansion and
development.
10:51:01 AM
MR. WRIGHT added, in terms of anti-trust, that FERC does not
have problems with producer sponsored pipelines. He mentioned
that many pipelines, such as the Alliance, originally were
producer pipelines. The FERC regulations have evolved over time
and the U.S. has created a market-driven system of open access
that includes standards of conduct and affiliate rules. He
pointed out that the open season rule expressed a need to
promote competition and that states or producers did not appeal
that order. The U.S. Energy Policy Act of 2005 gave FERC broad
penalty authority that includes applying millions of dollars per
day in penalties, which is a great deterrent to anti-trust
activity, he opined. He said, "I think a producer sponsored
pipeline can be considered by FERC without any anti-trust
problems, as well as a traditional pipeline by someone like
TransCanada."
MR. ROBINSON added that FERC's assessment would be based upon
the project, the application, and the proposal in terms of their
affiliate relationships. He noted that FERC process is
transparent and allows all parties to comment and raise issues
and concerns such as anti-trust issues.
MR. WRIGHT interjected that he would fully expect someone to
raise anti-trust issues.
MR. ROBINSON noted that FERC frequently has previously worked
with TransCanada. He offered that TransCanada is a major
pipeline company who "know how to build pipe and know what it
takes to get it built." He said he emphasizes that aspect
because he has worked with many pipeline companies and
characterized TransCanada as a "good group to work with."
10:53:25 AM
REPRESENTATIVE SAMUELS asked Mr. Robinson to elaborate on the
process for appointment to FERC. He further asked for specifics
on how Alaska is different and any ways that he could cite any
ways that the U.S. Alaska Natural Gas Pipeline Act of 2004
recognized that "Alaska is different."
MR. ROBINSON explained that FERC is comprised of 1,400 staff,
under the FERC chair, also the head of the agency. He noted
that the FERC chair is 1 of 5 votes for any commission
determinations and decisions. The FERC Chair guides the staff
in terms of emphasis, but ultimately, when an order is
submitted, that all five commissioners can bring their own
judgment and question specifics in the case. Ultimately, it
takes 3 votes to pass an order. No more than 3 members can be
from the party of the President of the United States, he noted.
However, the commissioners also serve 5 year staggered terms.
Energy issues typically have generally not been aligned along
party lines, but differences are regional, he opined. He
related that the decisions are fact-based and are also based on
the experience that each commissioner brings to the process.
The orders are subject to re-hearing, and if the party is not
satisfied, the party can appeal the decision to the U.S. Court
of Appeals, and then to the U.S. Supreme Court, which rarely
happens. The court first looks to FERC record, which is why its
record is so important, he offered.
MR. ROBINSON, regarding differences in Alaska, said that no
other pipeline has special legislation that dictates how the
commission should proceed, especially in terms of need. He
said, "The Congress has already told us that this pipeline is
needed. That has a profound influence on how we view this
project. It really takes a whole area of analysis and
assessment that we would otherwise do, and it sets it aside."
Thus, FERC will examine the issue of how to build the best
pipeline, he opined. The Congress's concern and balance between
proceeding to construction of a pipeline and the longer term
pipeline expansion "sort of work against each other in a process
kind of way." The second aspect is that the balance between the
two is laid out by the Congress with new authorities given to
FERC. The third aspect that makes Alaska's project different is
that the gas field in Alaska is a long way from the market. He
pointed out that FERC recently authorized a project that is
1,700 miles long, with a 42-inch pipe producing about 1.8 Bcf
per day. However, he noted that the proposed pipeline is even
longer to bring gas from Alaska to the Lower 48. Additionally,
the Canadian aspect, while not totally unusual, brings cross-
border issues with the NEB and the Canadian government, he
stated.
11:00:33 AM
REPRESENTATIVE KERTTULA asked if Mr. Robinson could "flesh out a
little bit more" how FERC would consider anti-trust aspects of
any application, and what FERC will consider, such as will FERC
consider any previous work and how FERC would proceed if it
finds actions are necessary.
MR. WRIGHT answered that FERC has a large and experienced Office
of General Counsel that will address anti-trust issues. He
offered that FERC cannot prejudice an application. He
acknowledged that some people may not like some aspects of
producer owned pipelines. He related that a history exists with
respect to producer owned pipelines and offered that FERC
operates on the basis that it will take all applications and
that it will address issues that arise.
MR. ROBINSON interjected that much has transpired since some of
the initial concerns with producer owned pipelines at the
commission, and the Congress as well. He noted that FERC has
adopted significant Standards of Conduct regulations that govern
how producers act with their affiliates. He asserted that FERC
has the ability to monitor those actions and imposes significant
fines when problems arise. During the development of the
certificate, FERC also has the ability to impose any conditions
necessary to ensure that those standards of conduct are met and
to ensure an open and transparent process is executed for any
pipeline project. He opined that anti-trust has connotations.
However, FERC approach is to ensure competitiveness and that the
behaviors are consistent with the competitive aspect of a
natural gas pipeline, he highlighted.
MR. WRIGHT interjected that FERC's open season rules ensure that
it will protect and not allow preferences such that "producers
cannot prefer their own supplies for the pipeline."
REPRESENTATIVE KERTTULA asked if applicants have to follow
conditions that FERC places on a certificate and to elaborate on
FERC's rules.
MR. ROBINSON stated that that FERC frequently conditions
certificates. The certificate holder must comply with those
conditions and the tariff provisions, or would be subject to a
million dollar a day civil penalty action, he noted.
11:05:04 AM
SENATOR THERRIAULT inquired as to whether an applicant approved
for pre-filing is obligated to go through certification.
MR. ROBINSON answered no.
SENATOR THERRIAULT further inquired as to whether an applicant
who is certified would be obligated to actually accept the
certification.
MR. ROBINSON pondered why an applicant wouldn't want to accept
certification, but added that an applicant would not be
obligated.
MR. WRIGHT interjected that an applicant might not want to
accept certification if FERC imposed conditions that the
applicant deemed was too onerous. He concurred that the
applicant does not have to accept the certificate.
SENATOR THERRIAULT recalled an earlier response in which Mr.
Robinson discussed negotiator rate contracts or tariffs. He
recalled that Mr. Robinson encourages the shipper and the
pipeline company to establish and negotiate rates and provide
them to FERC.
MR. WRIGHT answered:
In the sense that it fills the pipeline, yeah, that's
within the purview of our regulations to have
negotiated rates as long as you have a recourse rate,
which is a cost-based rate that other people can use.
SENATOR THERRIAULT further inquired as to whether the negotiated
rates could be written to shield the shipper against rolled-in
rates.
MR. ROBINSON said, "You would be prejudging what the commission
may do at the point of deciding on an expansion. I'm not sure
that would really fly. I can't think of an instance where that
has happened."
SENATOR THERRIAULT said:
In the 2005 [FERC] order here and one comment here in
Section 114, you talk about the pipeline companies say
that if the shippers were concerned about the effect
of such treatment they can seek to avoid it through
negotiated rates. They could insulate themselves from
the rolled-in rates.
MR. WRIGHT answered that negotiated rates could happen, but he
said, "I believe it also says you have to offer those rates to
other prospective shippers."
SENATOR THERRIAULT posed a scenario in which all the shippers of
a pipeline negotiate rates that FERC accepts, and inquired as to
whether the negotiated rates will insulate them from rolled-in
rates.
MR. WRIGHT said, "You are getting back to the insulating from
rolled-in, and I don't think we can say that right now."
SENATOR THERRIAULT asked if the state could arrive at a
situation in which all the shippers have insulated themselves
contractually. He inquired who would "pay the price" if a
voluntary expansion occurs.
MR. WRIGHT answered that FERC does not have to approve
negotiated rates and if FERC identifies something that "goes
against our open season regulations that is a presumption of
rolled-in rates for voluntary expansions, if there's something
that insulates them from that, we don't have to accept the
negotiated rate."
SENATOR THERRIAULT inquired as to whether it would be beneficial
to have it stated "up-front" that the pipeline shipping company
will contractually honor the requirement for rolled-in rates for
voluntary expansion.
MR. ROBINSON said:
Would it be beneficial? It depends on where you're
sitting. If you are looking at FERC process and
you're trying to pre-judge what the commission may
think is in the public interest at the time, if
somebody comes to the commission for an expansion, the
answer is 'no'. If you're trying to limit or in some
way influence what the commission might do at that
point, because you don't have any confidence in the
commission 5, 10, 20 years down the road, doing what's
in the public interest, given the facts of that day,
then the answer is 'yes'.
11:08:59 AM
SENATOR STEDMAN asked for clarification of the concept of
opening the basin. He posed a scenario in which a company
builds a pipeline as a 100 percent owner, with substantial gas
to fill the line, such as a 48-inch, 2,500 psi per day. He
asked whether an independent gas company would have access to
the pipe. He clarified that the company would have a path to
the main pipe.
MR. ROBINSON offered that the independent could approach the
pipeline company itself to determine if it would be willing to
expand to accept those volumes. If that did not work, he
surmised that the provisions within the Energy Policy Act of
2005 (EPAct) would allow the independent company to petition the
commission to require a hearing for expansion to ensure that the
facts are supported. Thus, two avenues would be available that
would allow the independent to have access to the pipe, he
noted.
SENATOR STEDMAN further inquired as to whether that company
previously mentioned would have an advantage over the
independent companies. In response to Mr. Wright, Senator
Stedman clarified that question assumes that the pipeline still
had capacity.
MR. WRIGHT answered that if capacity existed in the pipeline
that the independent company could not be precluded due to open
access.
MR. ROBINSON agreed that the large company would not have an
advantage over the independent in terms of existing capacity.
He offered that due to open access everyone would have equal
access to the pipeline.
SENATOR STEDMAN referred to The Energy Policy Act of 2005
(EPAct) and asked if the purpose of the act is a 'basin opening'
exercise to ensure that the arctic basin is opened up or if it
is restrictive measure.
MR. ROBINSON answered that it was a balancing act prescribed by
Congress and executed by the commission between the desire to
"get a pipe going" and the desire to "allow for easy expansion
and to encourage exploration and development of other gas
sources in the basin. It tried to do both," he said.
11:12:53 AM
MR. ROBINSON, in response to Senator Stedman, answered that
smaller companies have the protection of the open season
provision that allows them to come in and bid on the capacity.
He further offered that Section 105 [of ANGPA] allows the
smaller companies to petition the commission to require the
expansion and allow the volumes in the pipeline.
MR. WRIGHT explained that the initial allocation of capacity is
termed an anchor shipper or shippers, in which the shipper has
contracted for all the capacity prior to the open season.
Smaller shippers are afforded protection under federal law that
allows them to match the rate, the terms, and the conditions
that the anchor shippers contractually agreed to in order to
obtain a prorated portion of the initial allocation of capacity.
SENATOR STEDMAN asked for clarification of how the allocation
process would work and whether the larger anchor shippers have
an advantage in the process.
MR. WRIGHT posed a scenario in which 3 units: 100 units, 100
units, and 5 units, were available and would "need to be
squeezed down to 200 units," that each [of the large anchor
shippers] would get a little less than 100 units each.
CHAIR HUGGINS asked for clarification of the term, non-open
access pipeline.
MR. WRIGHT explained that a non-open access pipeline would be a
proprietary pipeline, which might be an interstate pipeline,
coming off a pipeline to feed a wallboard plant. He offered
that FERC has previously approved those types of non-open access
pipelines, but that the law dictates that the Alaska gasline
will be an open access pipeline.
MR. ROBINSON added that even in those instances of non-open
access pipelines, opportunities have been presented to determine
if others needed access to the pipeline.
11:17:14 AM
SENATOR STEDMAN asked if it would be fair to characterize the
Energy Policy Act of 2005 (EPAct) as being in the best interest
of the country since it would open up the basin and foster more
exploration and development.
MR. ROBINSON responded that the Congressional action and FERC's
regulations both recognize that it is important to ensure there
are mechanisms in place to allow for further expansion and
further exploration of the gas reserves that need the pipeline
in order to get to market. He agreed the EPAct serves that
purpose.
11:18:05 AM
REPRESENTATIVE FAIRCLOUGH recalled the collaboration or
partnerships FERC has had with NEB, and asked Mr. Robinson to
expand on FERC's experience in working with multiple
jurisdictions internationally.
MR WRIGHT responded that FERC cooperates with scheduling, and
information exchanges, but does nothing that would violate the
sovereignty of the laws of each country. Another country
decides on a project based on its laws and the United States
based on our laws. He characterized the process as one of
coordination and cooperation, and exchange of information to
attempt to make things work more smoothly, more timely, and
avoid the project being built in one country but not the other.
MR. ROBINSON interjected that FERC also avoids the development
of information in one country that has to be duplicated with the
development of information in another country. He related that
aspect of the Memorandum of Understanding is to ensure that
duplication doesn't happen. He stressed that FERC does not set
the schedule for another country, and vice versa, but ensures
that the other country is informed.
REPRESENTATIVE FAIRCLOUGH related her understanding that tariffs
must be similar when "you go to decide" and asked for
clarification.
MR. WRIGHT answered that the U.S. would have a tariff that
Canada would have a tariff and rates would be paid to both
entities.
MR. ROBINSON, in response to Representative Fairclough, answered
that the rates can be different. Mr. Robinson confirmed that
multiple rates are allowed.
REPRESENTATIVE FAIRCLOUGH related that the presentations to date
on the licensing agreement show the end location of the tariff
fees at AECO [Pipelines]. She inquired as to whether that was
typical in the other agreements.
MR. ROBINSON answered, "No, because that's the only pipe that we
have that would end in that place. The rest of the ones we have
are bringing gas into the U.S. from a Canadian source."
REPRESENTATIVE FAIRCLOUGH said, "Mr. Chairman, my concern is if
we're ending at AECO, 'How are we providing America gas?'"
MR. WRIGHT offered that what TransCanada has discussed running
"rather empty" from AECO or the Alberta Hub going east. He
related that TransCanada contemplates a lot of capacity to "take
on" Alaska gas, fill their pipelines, which as the Western
Canadian sedimentary basin becomes drawn down, it is a natural
complement to that capacity.
MR. ROBINSON interjected that it is not necessarily "the right
way to look at it" in terms of whether the gas will get to the
Lower 48. He explained that the gas pipeline system is an
integrated North American market for gas. Thus, gas that might
be used in Canada from Alaska also means gas in Canada might be
used in the United States.
REPRESENTATIVE FAIRCLOUGH questioned whether an additional
tariff would be added from AECO to a location into the American
market.
MR. ROBINSON responded that a tariff exists for movement of gas
on any pipeline so if a shipper wants to acquire gas and "move
it from AECO on down, there would be another tariff."
REPRESENTATIVE FAIRCLOUGH explained that the legislature has
been previewing a tariff cost to make this [TransCanada gasline]
project economical ending at the [Alberta] Hub. She related her
understanding that in 1980, FERC contemplated transportation
costs and recalled that FERC denied allowing road improvements
to be incorporated into tariff charges. She offered that
currently the U.S. contributes federal highway dollars to
maintain the Alaska Highway. She noted that the state is
looking at the Haul Road and different infrastructure
improvements to prepare for a gas pipeline. She inquired
whether in the event that Canada would need to improve its
highways, FERC would consider recommending including
construction costs for roads in the tariff, either for Canada or
the U.S.
MR. ROBINSON answered that FERC would not recommend to consider
costs for road improvements in Canada since it is outside the
U.S. jurisdiction He stated that roads necessary for the
project in the U.S. would be evaluated in that context when the
issue arises as the facts of the case.
MR. ROBINSON, in further response to Representative Fairclough,
answered that FERC will not review the tariff rate inside
Canada.
MR. WRIGHT stressed that while FERC does not have knowledge of
how TransCanada will structure its rates, he pointed out that
TransCanada has a history of rolled-in rates. He surmised that
the U.S. might also have a rolled-in rate for transportation in
Canada.
MR. ROBINSON interjected that the question is not how the tariff
would be applied, but whether there would be a tariff.
REPRESENTATIVE FAIRCLOUGH expressed concerned over how Canada
will calculate its tariff and stressed the importance of
understanding FERC interaction with Canada.
CHAIR HUGGINS offered that he will continue to invite the NEB in
order for members to ask pertinent questions.
11:26:08 AM
REPRESENTATIVE GARA stated that the state has certain interests
in a pipeline that might lead it to push forward on an
independently-owned project. He inquired as to whether FERC is
allowed to consider the state's interest when two competing
projects are moving forward. He posed an example such that many
legislators believe the larger oil companies will deter
production by competitors by preventing gas from entering the
pipeline, which he opined undermines the state's interest. He
further noted that many of us believe that by declining an
independent project and supporting an oil-owned pipeline, the
companies will be able to extract billions of dollars of tax
concessions from the state. He inquired as to whether FERC can
grant deference to the state's attempts to protect its
sovereignty.
11:27:52 AM
MR. ROBINSON answered that the commission has the ability to
review anything that affects its public interest determination
including the position of the state. However, that is only one
aspect of the commission's determination. He elaborated that
the commission will review opposing views on those issues. The
real concern is about what happens once the pipe is built, that
both the Congress and FERC have recognized that as an issue. He
opined that "the provisions are in place to ensure that nobody
can just use the pipe for their own purposes." If expansion is
required and it is not voluntary, it can be dictated. He said,
"We think we have a process in place, that irrespective of who
the applicant is, can ensure that when the pipeline needs to be
expanded it will be expanded."
REPRESENTATIVE GARA expressed that under FERC rules, the open
access provision causes the state concern, which is one reason
why the legislature adopted a state law. He pointed out that
under FERC's rules, the open access provisions cause some
concern. He opined that some legislators believe that if the
large oil companies own the gasline, that the producers will not
seek voluntary expansions. Further, he opined that the large
producers will need to be sued before FERC for a mandatory
expansion. However, if a mandatory expansion occurs, FERC rule
appears to allow incremental rates, which threaten to overcharge
new producers, he offered. That's why the state requires
voluntary expansions by anybody who bids on an AGIA process, he
opined. Thus, if voluntary expansion happens, the state is more
likely to get the rolled-in rates that ultimately will keep
shipping costs down lower for new entrants, he surmised.
Therefore, many legislators may prefer an independent pipeline
and may also prefer rules that go beyond FERC, he concluded.
MR. ROBINSON opined that everything is available to be
considered. The weight that the issues will be given depends on
who is the commissioner at the time of the review, but the
commission also must review its role as dictated by the Congress
to ensure that some of the concerns just expressed are equitably
treated for all parties, not just the interest of one group.
REPRESENTATIVE GARA recalled that Mr. Robinson stated that FERC
would be concerned if a project came forward without any gas.
He posed a scenario in which two competing proposals - one owned
by the major producers and one by an independent company. He
noted that the major producers may have a financial incentive to
commit gas to its own pipeline, but when independent company
comes forward, it is possible that the major producers would
attempt to withhold gas to defeat the other pipeline. He
inquired as to how FERC would handle two proposals given the
importance that a project have gas.
MR. ROBINSON offered to parse out the motives from the question.
He stated that FERC has the ability to examine and review two
projects, and to also review a project that does not have
presumed agreements on the gas necessary to fill the pipe. He
said that FERC has made it clear in its reports to Congress that
it is not FERC's preference to have an applicant come to us that
doesn't have any presumed agreements associated with it. He
maintained that FERC would prefer not to be in the position of
having to treat that. He noted that applicants can submit to
the pre-filing process, and FERC will review the pre-filing in
terms of whether the applicant can support the application
process. He said:
When you've had an open season and people have shown
up, and they've shown an interest, that gives you some
level of confidence. Having said all that, Alaska is
a unique case. We're well aware, and we have followed
closely ... the machinations that have been involved
in trying to get an application to the commission.
That would be considered as well. So that would be
considered as well. We would just prefer not to be
put into that position where we're being questioned
about our resource utilization for a project that
doesn't have anybody signed up to utilize that
project."
REPRESENTATIVE GARA stated that he hopes that FERC would not
allow one consortium of companies to block a viable pipeline.
MR. ROBINSON responded that is not what FERC's open season
process is about.
11:34:01 AM
SENATOR DYSON asked for clarification of the discussion related
to national interest and natural monopoly multiple players.
MR. ROBINSON reiterated that the act of Congress puts the
pipeline in a different perspective for FERC. He surmised that
in instances in which more than one pipeline is proposed that
essentially services the same market that ultimately one
pipeline is built, even if two or three or more proposals are
submitted to FERC to "move the same gas." He related that FERC
may review and certificate all of the applications, but
ultimately only one will be built. He said that he is confident
that only one pipeline will be built.
MR. ROBINSON, in response to Senator Dyson, answered that the
final matter will be decided by who is able to finance the
pipeline.
MR. WRIGHT interjected that if company "X" cannot attract funds,
the director will advise its board of directors to vote down the
project.
SENATOR DYSON related his understanding that two certificates
could be issued, and the companies would seek funding, with both
successful at some level. He inquired as to what allows the
company to proceed.
MR. ROBINSON explained that both companies will seek financing,
and the competition for items such as who would be able to
finance it, how the money would be accumulated, the interest
rates, and the level of equity. He surmised that somebody would
successfully put together a financial package. Once that
happens, he opined, it is highly unlikely anyone else would be
willing to put together a "financial package." In response to
Senator Dyson, Mr. Robinson answered that FERC will not perform
a second review once the financing is secured.
MR. WRIGHT added that FERC will have conditions such that the
applicant cannot break ground until it has the capacity under
contract.
11:38:10 AM
REPRESENTATIVE HAWKER related his understanding that the
legislature must establish extra standards to avoid the tariff
issues that plagued the Trans-Alaska Pipeline System (TAPS). He
inquired as to whether the gasline is this same situation.
MR. ROBINSON answered that it is not same situation. First, the
[TAPS line] is a common carrier and the gasline is a contract
carrier. Second, the gasline has a specific set of legislation
that governs the gasline as well as the commission's regulations
that contemplate the desire to see expansion. He said, "I just
don't see them as being similar." He explained that FERC
employs a model that is efficient and quick. He characterized
the pipeline process as a "functioning everyday kind of
process."
REPRESENTATIVE HAWKER referred to the enhanced or real open
access project. He stated that FERC "looks out for the public
interest, but not Alaska's interest."
MR. ROBINSON answered, "That's true and untrue." He related
that FERC determines what is in the public interest and
highlighted that Alaska's interests are a large part of that
equation. He elaborated that FERC has input from Congress,
reflected in FERC's regulations that direct it. He highlighted
that FERC does not exclusively hone in on what will maximize the
return to the producer, the pipeline, or the state. However,
FERC goes beyond that and makes a judgment about what's in the
public interest to ensure that a pipeline gets built that can be
expanded to accommodate new exploration and production.
REPRESENTATIVE HAWKER offered that one of the arguments being
put forth is that FERC does not protect Alaska's interest in
expansion. He stated his appreciation for clarification on the
matter and for the approach that FERC uses to base its decisions
on its experience and factual basis and that it does not attempt
to predict the future. He inquired as to whether Mr. Robinson
is aware of any historical instances in America of gas being
stranded because producers refused to develop a pipeline.
MR. WRIGHT responded that it is just the opposite since the
producers want to get gas to market in order to make money. He
related that a prime example of that is in the Rocky Mountains.
11:41:40 AM
SENATOR STEVENS related his understanding that FERC will not
have any control over the pipeline once it enters Canada. He
asked Mr. Robinson to elaborate on the expectations and demands
of Canada in transporting Alaska's gas to the contiguous U.S.
MR. ROBINSON responded that FERC cannot demand anything of
Canada, in terms of its tariff provisions or its actions.
However, he stated that [the pipeline crossing Canada] does not
cause him concern since North America has an integrated natural
gas system. He offered that he recently visited the Canaport
liquefied natural gas (LNG) facility in Saint John, New
Brunswick, Canada. He explained that the LNG is supplying gas
to New England, primarily to Boston, Massachusetts via the
Maritimes & Northeast Pipeline, L.L.C. pipe. He characterized
the Canaport LNG gas as almost "dedicated" to supply LNG to the
U.S. market. He added that the same market that is fed by
Canaport is also available from [one of] TransCanada's
pipelines. He continued:
It's really just getting gas into North America, into
that system that's relevant from my perspective.
That's what we...work with NEB for, is to make sure
the pipes are there for easy access back and forth.
I'm not overly concerned with where the individual
molecule ends up. It's just that we get the molecules
up and into that integrated system.
MR. WRIGHT added that the demand exists in North America for
natural gas. He stated that Alaska's gas is needed and will be
used by either Canada or the Lower 48.
MR. ROBINSON further added that similar situations exist on the
Mexican border. He related several projects, such as one pipe
that transported about 1 Bcf/d to Mexico from the Texas area,
but that an LNG plant at Tampico in the Gulf of Mexico may make
it possible for the gas to serve part of Texas via Mexico.
11:45:55 AM
REPRESENTATIVE KERTTULA inquired as to whether it would be
easier to come in with an agreement to present to FERC for
specific things that the state desires, such as rolled-in rates
or offtake points.
MR. ROBINSON answered, "As long as nobody objects to it, yes."
11:46:41 AM
REPRESENTATIVE DOOGAN recalled that when Mr. Robinson said that
the producers want "to get the gas out" that he assumes he meant
that the producers want to get their "own" gas out.
MR. WRIGHT answered that a producer is in the business to
produce gas, get it to a market in order to monetize that asset.
REPRESENTATIVE DOOGAN referred to Section 105 [of ANGPA]. He
posed a scenario in which an independent producer files an
appeal to FERC, under Section 105 of ANGPA for access to ship
gas during expansion. He inquired as to the length of time for
a decision from FERC.
MR. ROBINSON responded that since decisions have not been issued
under Section 105 or ANGPA, he did not know. He offered that
FERC has a history and record of issuing prompt decisions.
REPRESENTATIVE DOOGAN asked if Mr. Robinson could offer general
timeframes for FERC's decisions.
MR. WRIGHT responded that the Kern River Pipeline [in the Rocky
Mountains], FERC's first project under pre-filing, for a 900
mile natural gas pipeline, was approved in 10 months, including
conducting its environmental work.
REPRESENTATIVE ROBINSON offered another example of a pipeline
for 700 miles that involved 1,700 landowners took approximately
11 months to complete FERC review.
REPRESENTATIVE DOOGAN inquired as to whether the Section 105 [of
ANGPA] provisions would add to the timeframes.
MR. ROBINSON said he thought that what would guide FERC is its
experience. He related that the more opposition, the "tougher
it is to get things done, but we have a way of overcoming
hurdles."
11:51:41 AM
REPRESENTATIVE SAMUELS inquired as to whether Mr. Robinson
believes that this gasline will be built in the next 10 - 15
years, that it is "a foregone conclusion". He prefaced his
question with the observation that some projects have suffered
problems, such as the pipeline in Norway that has not been built
despite gas availability.
MR. ROBINSON answered that it is not a foregone conclusion. He
opined that it is going to be a "tough job" that will require
all parties to adopt an attitude that they have a common goal.
He further opined that this project will be "easy to derail,"
that litigation is always available, and the ability to obtain
financing will be heavily dependent upon "does it look like they
have a clear path." He offered a concept he uses in
construction called the "first dollar." Nobody invests the
"first dollar" if they don't see a clear path, to some degree,
of getting a project built in the long run and recouping the
investment of that "first dollar". The higher the investment,
the more significant that "first dollar" is, he stated. He
asked legislators to give FERC process an opportunity to work
and make the project happen by starting with the pre-filing and
"getting it going."
MR. WRIGHT highlighted that if the state does not start that
pre-filing that a 10 year projection is not realistic. He urged
members to start the process now.
REPRESENTATIVE SAMUELS followed up by asking if any party has
pre-filed thus far.
MR. ROBINSON related he received an email earlier today that
FERC expects to receive a pre-filing application from the Denali
project.
11:55:05 AM
The committee took an at-ease for lunch from 11:55 a.m. to
1:37 p.m.
1:37:01 PM
CHAIR HUGGINS called the meeting back to order at 1:37 p.m. He
announced that a copy of the June 15, 2008 pre-filing
application by the Denali Project is available for members.
1:38:30 PM
REPRESENTATIVE CRAWFORD recalled a recent newspaper article that
advised that the Denali Project intends to buy 5 million tons of
steel while TransCanada intends to purchase 2.5-2.75 million
tons of steel. He acknowledged that TransCanada can take
advantage of some pipeline already constructed. He inquired as
to whether FERC can consider the steel when considering the
proposal. In response to Mr. Wright, Representative Crawford
clarified that that the Denali Project proposes to bypass the
hub in Alberta as opposed to TransCanada project that would take
advantage of existing pipeline.
MR. WRIGHT answered that FERC takes it into account in terms of
making rates, since obviously it is a cost component that
applies to rates. When FERC approves or recommends an order to
the commission it will contain proposed initial rates that will
reflect labor, material costs, etc; the outcome that will be
presented to FERC, whether it is TransCanada or the Denali
Project, will reflect different rates due to different inputs.
Mr. Wright said, "Now if your question's going, 'Are we going to
recommend denying Denali because they're using 5 [million] tons
of steel versus 2.5 [million] tons?'"; and answered, "I don't
think so."
REPRESENTATIVE CRAWFORD asked:
Even though it would mean a much higher tariff and
[the Denali Project] would be shifting the production
dollars down to transportation dollars and it would
mean a huge difference in the amount of money that
goes to the state, that wouldn't be something you
would consider.
MR. ROBINSON responded:
Every issue would be considered so yes, it would be,
but predicting the outcome because it is more than
just the tons of steel that will be used. It's the
project that is being proposed and the attributes it
brings with it. It may in one instance be very much
worthwhile, having a project that uses twice the steel
and goes farther; than in another instance it may not,
depending upon the entirety of the fact base. I think
that what Jeff [Wright] meant was, is that the
commission would not make a decision just on its 2.5
million tons of steel versus 5 million tons of steel.
You have to look at the entirety of the project to see
if it makes sense and is in the public interest to
certificate the project that involves 5 million tons
of steel.
1:42:30 PM
REPRESENTATIVE CRAWFORD opined that it seems that $6 billion is
approximately what it would cost to build a line using 2.5
million tons of steel, but $12 billion is what it would cost to
build the line to bypass the existing pipe. He further opined
that there would be such an innate advantage to using what
exists, rather than creating a parallel pipeline.
1:43:10 PM
MR. ROBINSON pointed out that a project has not been submitted,
so he did not know what a proposal would entail or its
attributes. He opined that a proposal can vary substantially
from one project to another and may or may not justify a
specific end point or size of the project. He offered that
without reviewing the details and performing the analysis, an
assessment cannot be made solely on the basis of the amount of
the projected steel that will be used.
MR. WRIGHT offered that pre-filing is all about identifying
issues and discuss them.
1:44:04 PM
REPRESENTATIVE RAMRAS inquired as to how many of the five
competing certificates in Oregon enjoy a state subsidy and
whether Mr. Robinson could provide a history of projects with
state subsidies that didn't include ownership.
MR. ROBINSON said offhand he did not recollect instances in
which states have taken an interest in a project and definitely
not in Oregon.
MR. WRIGHT recalled that Wyoming set up public authorities that
issue bonds for developing infrastructure within the state for-
electric and for its natural gas pipeline. He surmised that the
state could have the ability to take equity positions if it
chose to do so, but he is not aware that it has done so to date.
MR. ROBINSON agreed.
1:46:17 PM
REPRESENTATIVE RAMRAS inquired as to whether states have opened
themselves up to treble damages.
MR. ROBINSON answered that Wyoming is the only state that FERC
is aware that has set up public authorities, but that he does
not know for certain. He elaborated that FERC is not committed
to reviewing what's behind the development of an application.
Rather, he related, FERC is committed to receiving the
applications, treating the applicants fairly through FERC
determination process to decide what is in the public's best
interest. He noted that any actions that transpire prior to the
application being pre-filed "is somebody else's business."
1:47:01 PM
REPRESENTATIVE RAMRAS recalled his visit to FERC office in
Washington D.C. and that one of the statistics mentioned is that
by 2008, 6 Bcf/d would be imported into the U.S. and by 2010
that number will increase to 20 Bcf/d. He inquired as to
whether any benefit exists to concentrate on monetizing a
project first and then contemplate of expanding project from 4.5
Bcf/d to 6 Bcf/d.
MR. ROBINSON responded that the legislation contemplated [ANGPA]
and FERC regulations codified the dual purpose of constructing a
gas pipeline, and the Congress and commission through its
regulations to encourage additional gas fields in Alaska with a
mode for future expansion capability. He opined that is the
reason for Section 105 [ANGPA], and provisions in FERC's open
season regulations that provide for ease of expansion, when it
becomes necessary. The FERC clearly understands that dual
purpose aspect of the development of the Alaska gas pipeline, he
opined. He surmised that FERC will maintain that position as it
reviews the application along with the tariff and mechanics of
engineering of the pipe. He said he anticipates that FERC will
examine the exact location for the compressor stations and the
thickness and size of the pipeline in terms of the ease of the
expandability of the pipe at the appropriate time.
1:49:53 PM
REPRESENTATIVE FAIRCLOUGH recalled that it has been proposed
that Alaska has distance sensitive rates. One, it's proposed
that Alaska should have one rate. Second, it's proposed at each
of the five different offtake points that different distance
sensitive rates would not include any charge for gas as it moved
beyond that particular point, or in and through Canada. She
inquired as to how FERC will review tariff charges in an
application that provides for distance sensitive rates for
instate offtake of gas.
MR. ROBINSON answered that FERC would review any issue in the
same manner. The issue will be proposed, noticed, parties would
comment, and then FERC will decide what's in the public's best
interest in matters such as providing for state needs. He
opined that FERC would obtain the best balance between the
producers, the shippers, and the pipeline company to set the
tariff in the public's best interest and that it would not favor
one group over another.
REPRESENTATIVE FAIRCLOUGH noted that Alaska is geographically
unique and that its offtake points will be significantly
different. She opined that other states may have incremental
tariffs, but that Alaska's issue will be whether it can
capitalize the entire cost inside of Alaska and how that cost
will be fairly spread for Alaskans. She inquired as to whether
FERC has reviewed similar cases.
MR. WRIGHT answered that a pipeline of that size usually has
zones and the points closest to the source of the gas will be
the cheapest transportation. As you go zone by zone it becomes
more expensive. He opined that gas transported from the North
Slope to the Canadian border would have the highest charge.
However, incremental points along the way would represent lesser
costs due to the lesser distance, he noted.
REPRESENTATIVE FAIRCLOUGH surmised that throughput will be an
issue for that type of tariff.
MR. WRIGHT answered that throughput is always an issue. "It's
actually the design of the pipe; how big is the pipe going to
be; what's its capacity, and that's how you design rates."
MR. ROBINSON interjected that once the rate is set, that the
rate doesn't change by how much gas is transported through the
pipe.
1:53:08 PM
REPRESENTATIVE FAIRCLOUGH related her understanding that FERC
has approved distance sensitive rates by zones.
MR. WRIGHT answered yes.
MR. ROBINSON concurred. In response to Representative
Fairclough, Mr. Robinson answered that he is not familiar with
the potential $10 million contingency liability for Alaska.
MR. WRIGHT concurred that he did not have a familiarity with the
liability issue either.
REPRESENTATIVE FAIRCLOUGH related that TransCanada's financial
"notes" list a $250 million liability that could potentially
increase by 14 percent due to partners of previous partnership.
She inquired as to what position FERC has on that type of
liability and further, if the liability could be tacked on as a
U.S. tariff.
MR. ROBINSON opined that that matter would represent a unique
finding for the commission. He reiterated FERC process is to
raise an issue, perform fact finding, and present to the
commission for it to determine the outcome. He offered that
FERC does not have a history with that type of problem
associated with a pipeline.
1:54:02 PM
REPRESENTATIVE FAIRCLOUGH inquired as to whether FERC has
experienced other lawsuits and rolled litigation costs into
tariff rates.
MR. ROBINSON answered that there may be cases, but that he could
not recall any instances.
1:54:25 PM
REPRESENTATIVE SEATON asked for clarification on pro-rated
volume. He recalled that prior presentations have related that
oil pipelines are common carriers and if someone has new oil
that it can get prorated and rolled in that volume. He said he
thought that FERC mentioned the same thing about gas volumes, if
someone finds new gas and our earlier discussions were that it
would need to go through expansions and not through pro-rating.
MR. WRIGHT pointed out that oil pipelines are common carriers.
A producer arises with oil to ship and the pipeline must pro-
rate the capacity to accommodate the new producer, regardless of
the rate that is being paid. He explained by offering a
scenario in which anchor shippers used all the capacity prior to
an open season, during the initial capacity allocation for an
Alaska pipeline, and another potential shipper arose during an
open season - and matched the rates, terms, and conditions that
the anchor shippers agreed to - that the capacity would need to
be prorated for the new potential shipper. He offered that the
scenario described is the only instance for proration. He
pointed out the distinction of common carriers is that it
doesn't matter what the rate is because the new shipper must
still be accommodated. He noted that an Alaska pipeline would
provide for such an accommodation.
REPRESENTATIVE SEATON related his understanding that after the
pipeline is flowing and a new shipper has gas to ship, that if
it required an expansion, that action would be considered an
expansion and not a proration. He related his understanding
that a proration only occurs at the initial bidding for volumes
in the pipeline.
MR. WRIGHT answered, "Exactly." He noted that if one person
requests an expansion, the pipeline would offer an expansion for
them if it is feasible - voluntary, or involuntary. However,
during a subsequent open season, if multiple parties requested
additional capacity, it is possible that the pipeline could
economically only expand so much, and then "you could go into
that proration for the expanded capacity," he said.
MR. ROBINSON interjected:
Let's say the next engineering increment of feasible
expansion is another $100 million and they have 3 or 4
people that want to do it and they total out to $120
million. The next expansion of that isn't available
up to $500 million. You've got $20 million that you
can't handle under that expansion. Then you might
have to do a proration for that one expansion to get
it back to the $100 million again. That's kind of
rare.
MR. WRIGHT highlighted that action would apply so as long as the
parties are paying the same rates, terms, and conditions.
REPRESENTATIVE SEATON asked for clarification that proration
would be among the parties bidding for expansion gas or would
the initial shippers be proration and have their volume reduced.
MR. WRIGHT answered, "proration for expansion volumes."
1:58:09 PM
REPRESENTATIVE SEATON expressed concern for mandatory expansion
that doesn't have the presumption of rolled-in rates. He posed
a scenario in which 2 producer proposals were submitted, that
were in a mandatory expansion, with incremental rates. He
surmised that the new exploration would be subject to much
higher tariffs. He further surmised that would likely slow down
exploration since companies would not want to submit to
contesting for expansion or pay incremental rates. He inquired
as to how FERC would handle two projects, one that embodied the
scenario just described, and the other being that the pipeline
was required to propose rolled-in rates.
MR. ROBINSON related that a number of assumptions are built in
to Representative Seaton's question. He said, "I'm not sure all
the assumptions I would necessarily agree with. The Congress
contemplated a method for expansion and FERC issued regulations
associated with [ANGPA]. The FERC regulations do not preclude
rolled-in rates for involuntary expansion. It's just that there
is no rebuttable presumption that they are appropriate. So, the
test is not as high. However, any rate making action is subject
to the facts, including testimony by those who support or oppose
the action, then the commission deliberates on all aspects, and
makes its decision. He opined that it is very difficult to
speculate how something would play out on an expansion without
the facts associated with it at the time of the determination.
He offered that some people may see a clear path, and they may
be right, but that it is hard to predict that far out.
MR. WRIGHT interjected:
You may have an involuntary expansion, and ...the
project operator ... in terms of I don't know if they
really want to "cut off their nose to spite their
face." A lot of times you get cheap expansibility and
it's to their benefit sometimes to roll it in because
it could actually reduce their rate. You see that a
lot with compression expansion, which I would assume
for a good deal of the expansions of an Alaska
pipeline would be expression related expansions.
2:01:52 PM
SENATOR THERRIAULT, with respect to mandatory expansions,
recalled the language in [Section] 105 [ANGPA] discusses that it
is not supposed to adversely impact the pipeline operations,
economic viability, not create a subsidy. He inquired as to
whether FERC has defined any of those terms previously and what
process FERC uses to define a subsidy such as whether it is the
initial rate or the lowest point on a "J curve."
MR. WRIGHT answered that "subsidy" as used in FERC's current
pipeline certificate policy is anything that would raise the
system rate. He noted that if an expansion happens that
everyone would pay a higher rate, which FERC would consider as a
subsidy.
SENATOR THERRIAULT surmised that under Section 105 [of ANGPA]
that FERC may need to review that again. He inquired as to the
length of that process and if the commission has a specific time
to decide a case, such as within a year. He surmised that if
the matter was appealed, that the courts would not have time
constraints in which to make its decision.
MR. ROBINSON related that any decision the commission makes is
subject review by the courts. He offered that the specific
timeframe associated with a particular case is set by the facts
of the case.
MR. WRIGHT reiterated that FERC does not have a statutory
requirement for a time limit to decide voluntary or involuntary
expansion. However, he stressed that FERC attempts to expedite
cases while ensuring the public safety and the environment.
MR. ROBINSON interjected that FERC has an extensive record,
which is readily available, in terms of the length of time it
takes to complete its review. He characterized FERC's
reputation as one "to move projects" and he gave his assurance
that he will do everything he can to ensure its reputation is
not tarnished.
2:04:39 PM
REPRESENTATIVE HAWKER recalled the legislature's review of the
gasline, and pointed out the one issue that seems to be "driving
the debate" is the subject of expansion. He inquired as to
whether Mr. Robinson could explain on a calendar timeline when
expansion will "really be an issue for us."
MR. ROBINSON answered that it would be beyond 10 years. He
opined that if the process began immediately, it will likely be
10 years before gas is flowing. He recognized that some
expansions have happened while in midst of a project, but he
surmised that it would be unlikely in Alaska. He noted that
expansions have happened during construction when the market
changed radically over a 2 year period. He opined that with the
size and scope of the Alaska pipeline that he suspects the
project will likely get pipe in place. He speculated that a new
discovery could change a project from 4.5 Bcf/d to 7 Bcf/d and
that FERC would accommodate that scenario.
2:07:09 PM
REPRESENTATIVE HAWKER inquired as to the expansion process.
MR. ROBINSON related that during 2000-2001 California energy
crises, that the KERN project delivered about 1 Bcf/d of natural
gas to southern California. However, he explained, it became
apparent that California needed more natural gas. He noted that
FERC went through an expansion on that project in about 6 weeks,
and authorized it. It included hundreds of miles of looping,
new compression, which increased the delivery significantly, he
noted.
MR. WRIGHT clarified that the project Mr. Robinson mentioned is
a different expansion in the Kern project than the one referred
to in today's earlier testimony.
REPRESENTATIVE HAWKER related that discussions have been had
that expansions are expensive and can increase the cost. He
said he wanted to have on the record that the initial expansion
stage can "work in the opposite direction."
MR. ROBINSON agreed. He related that expansions are project
specific. He said, "Yes, sometimes they do result in tariffs
that are greater, other times they result in reductions."
2:09:14 PM
REPRESENTATIVE HAWKER recalled that Mr. Robinson has mentioned,
"first dollar" on several occasions. He related that expansion
is speculative. He inquired as to whether the committee should
be prioritizing and making the expansion issue as "great an
issue as we seem to be making it." He further inquired as to
whether the committee is making too much of an issue of it at
the risk of missing the "first dollar."
MR. ROBINSON said, "I think that is something you really have to
ask yourself." He related that during a proposed storage
facility in Arizona that the state legislature took some actions
that precluded that storage from being built. He stated that
during a visit to Arizona, a legislative leader said that
Arizona really needs storage and that he supported it. Mr.
Robinson advised him that it is too late. He surmised that the
legislature took actions that "killed" the project. He asked,
"Who's going to spend the 'first dollar'" in Arizona, when a
reasonable project had an action taken that "cut the feet out
from under their project." He said he did not believe that a
proposal has been submitted for storage in the last 7 or 8
years. He said, "You have to create environment where people
want to spend the "first dollar" with some reasonable
expectation of it coming to fruition and then recouping the
investment on that "first dollar" investment."
REPRESENTATIVE HAWKER stated that Mr. Robinson just cited a case
in which government action distorted the reasonable actions of a
free market, and attracting that "first dollar" became almost
impossible. He expressed concern that the state is attempting
to do that without a clear path forward by providing $500
million in state funding, which could distort the actions of a
free market.
MR. ROBINSON, in response to Representative Hawker said he would
not comment on the state's actions. He offered that FERC is
looking for an applicant to work with and that FERC never takes
a position.
MR. WRIGHT added that the state has to get pipeline built first
and then consider expansion. He stated that the state should be
concerned about how expansions are handled, but "getting the
'first dollar'" and "getting the pipeline in the ground" is the
paramount importance. He said, generally speaking, "you hook on
compression, that's cheap, but when you start breaking ground,
and looping, putting a pipeline in the ground, another one
beside the original, that's when things gets get really
expensive with expansions."
2:13:15 PM
REPRESENTATIVE GARA inquired as to whether the "no subsidy rule"
only applies to forced or mandatory expansions.
MR. WRIGHT answered, "For voluntary, you get the presumption of
rolled-in rates. For involuntary, you do not get a presumption;
that's not to say you can't have rolled-in rates for an
involuntary expansion."
REPRESENTATIVE GARA stated that he understood that distinction.
However, he referred to the rule that says, "in an expansion, an
expansion can't be subsidized."
MR. ROBINSON answered that irrespective of voluntary or
required. He said, "that non-subsidization goes to expansion."
REPRESENTATIVE GARA related his understanding that the rule that
says you can't subsidize an expansion applies whether it is a
voluntary or involuntary expansion, and whether it is rolled-in
or incremental rates.
MR. ROBINSON said he believes that is correct.
2:14:59 PM
REPRESENTATIVE GARA posed a scenario in which an initial
pipeline owner who also owns the gas subsequently receives a
demand for expansion of the pipeline. He related his
understanding that under an incremental rate proposal, the
original cost would be the same, but new shippers would be
charged for their expansion. He said, "Say, the original
shippers said, 'with rolled-in rates all of our costs are going
to go up and therefore I'm subsidizing somebody else's
expansion.' In that circumstance would you then reject the
concept of rolled-in rates or can you not say."
MR. ROBINSON answered that in viewing historically how the
commission has defined it, I think that the way you've stated it
is correct. But, again, given the unique legislation, and that
term in the context of the legislation, may be something that
people would debate at the time it would get in front of the
commission.
MR. WRIGHT interjected:
Remember that when you have a voluntary expansion,
this is something that differs from our current
pipeline certificate policy; you get the presumption
of rolled-in rates. That's a subtle, maybe not so
subtle difference between our current pipeline
certificate policy for voluntary expansions on an
Alaska pipeline only.
REPRESENTATIVE GARA related that the policy behind AGIA was that
the legislature wanted to encourage that as much as possible so
the legislature required voluntary expansions.
MR. ROBINSON said, "There is a second term that we keep
dropping, the rebuttable presumption."
REPRESENTATIVE GARA related if two projects, the TransCanada and
Denali Project, moved forward, and if both meet FERC
qualifications, will FERC leave it to the marketplace to
determine which project is financed.
MR. ROBINSON responded that FERC has historically authorized
projects that meet the public interest and that the market will
pick the one that will bring the lowest cost gas to the
consumer.
2:18:39 PM
REPRESENTATIVE ROSES asked whether it would be considered a
subsidy if the pipeline owner were to come forward with scenario
in which they were to change their debt to equity ratio at the
time of expansion since that has the potential for changing the
rates.
MR. WRIGHT answered that it could be considered a subsidy, but
that it would need to be analyzed at the time of the filing.
REPRESENTATIVE ROSES asked for clarification of how FERC would
view the debt to equity ratio in terms of what is reasonable.
MR. WRIGHT answered that FERC would have to evaluate it at the
time given that the expansion could occur 5 to 10 years or even
longer.
REPRESENTATIVE ROSES asked for a historical perspective, as to
how often FERC has experienced a scenario in which an expansion
occurred and the pipeline owner wanted to change the debt-to-
equity ratio.
MR. WRIGHT answered that has happened numerous times. He
explained that sometimes the debt equity ratio does not change
due to the conditions of the market such that rates fluctuate
and so returns on equity vary. Additionally, the debt equity
mix can be changed as well.
REPRESENTATIVE ROSES inquired as to whether FERC would examine
each expansion individually in the instance that a proposal was
submitted to FERC and all the expansions after initial expansion
were at a 60:40 debt ratio as opposed to if the initial
construction ratio had a 70:30 ratio. He further inquired as to
whether FERC would allow the fact that the original agreement
was that the producer would bring forward a 60:40 debt ratio for
every expansion.
MR. WRIGHT answered that FERC would look at the market at the
time and that FERC would not "tie the hands of future
commissions on the debt equity ratio."
2:21:13 PM
REPRESENTATIVE GARDNER related that under the current proposal
before the legislature, the ownership construction operation of
the gas treatment plant (GTP) is not necessarily part of the
proposal that will be submitted to FERC. She inquired as to
whether the gas treatment plant would be subject to FERC
regulation. She explained that part of the legislature's
concern is that regardless of the terms for access to the
pipeline, if parties can't obtain access to the GTP, that it
could potentially be a bottleneck. She recapped her question to
ask if a proposed gas treatment plant is owned by another entity
and not part of the proposal what FERC's role would be, if any.
MR. WRIGHT recalled that with the Alliance Pipeline project that
FERC has jurisdiction over the gas treatment plant (GTP). He
said he was not quite sure and offered to provide information to
the committee.
MR. ROBINSON interjected, "We have it both ways."
2:22:29 PM
REPRESENTATIVE KERTTULA asked to have explained the presumption
and the rebuttal presumption for the public.
MR. WRIGHT answered:
Rolling in your cost is simply when you have a
pipeline that is in existence; you do an expansion,
the cost of that expansion is rolled-in to the
existing rate base, or the original 'pot of dollars'
along with the volumes that are added, and you create
a new rate. When you roll it in if it's cheap
expansibility - doing the math there - you could
actually come out with a cheaper rate; you could come
out with a more expensive rate than usual. Sometimes
though, when you come out with a rate that's higher,
that's what we would consider at FERC to be a subsidy.
Under our current pipeline certificate policy, we do
not allow subsidies ergo you would have to price that
- what we call incrementally - and that is the shipper
or shippers that benefit from the new facilities would
pay the entire cost of that expansion divided by the
new volumes that they add to the system. The original
shippers would still pay the same rate they had always
been paying. Now, when you have an expansion, and
it's voluntary under the open season regulations you
get a rebuttable presumption of rolled-in pricing,
that is it could be subsidization as we consider under
our current pipeline certificate policy, but we could
see given the circumstances when an expansion is
proposed that having that rolled-in rate, even if it
might result in some sort of subsidy might be
beneficial and we would allow that to go through.
Involuntary...there is no rebuttable presumption of
rolled-in pricing. Therefore, you probably would
revert to our pipeline certificate policy and if we
see it would be a subsidy, we would require an
incremental rate. If it actually reduced the cost,
and reduced the rate for the original shippers, we
would allow it to be rolled-in.
MR. ROBINSON said, "For the benefits for the folks back home.
This means that they get the benefit of the doubt for the
rolled-in rates."
REPRESENTATIVE KERTTULA opined that they don't if it not
voluntary.
MR. ROBINSON agreed.
2:25:06 PM
REPRESENTATIVE DOOGAN referred to slide 2 labeled, "Alaska
Pipeline Timeline," to the Example Case and inquired as to
whether this is a reasonable timeline.
MR. ROBINSON answered yes.
REPRESENTATIVE DOOGAN recalled copies of a letter from the
Denali Project that had a timeline that pushed the schedule two
years forward into the future. He read, "Denali would expect to
submit its complete application to the commission by August
2011. Denali would desire commission approval no later than
August 2013. He asked for clarification or comment on the
Denali Project schedule."
MR. ROBINSON replied that he could not. He explained FERC
process: the applicant requests pre-filing and establishes a
timeline that it believes is reasonable; FERC reviews the
application and can modify the schedule and timeline for what
FERC believes is appropriate and necessary. He said that the
Denali Project application has just been received and will be
examined. He said, "We think this is a reasonable proposal.
Someone else may look at it and think, okay, we need three field
seasons. We don't know. Maybe they think this field season is
already too late to get anything done. We just don't know."
REPRESENTATIVE DOOGAN related his understanding that this is
their "opening bid" on the schedule.
MR. ROBINSON answered that the applicant's schedule is what
Denali perceives as the appropriate schedule. He noted that
FERC has not reviewed it yet to determine whether it agrees.
2:27:10 PM
REPRESENTATIVE GATTO referred to the existing pipeline corridor
and posed a scenario in which one applicant would propose a 36-
inch pipe fully compressed, which he opined would essentially
close the basin to new explorers; and a competing applicant
proposed a 48-inch pipe, which he opined would render the basin
wide open to additional exploration. He inquired as to whether
as to whether FERC would grant one certificate in favor of
another or if it would issue certificates to both applicants.
MR. ROBINSON related that FERC could consider that scenario. He
explained that FERC has seen every variant including combining
pipe over certain distances through certain rights-of-ways to
reducing the right-of-way width to accommodate different sized
pipe, to separating them for infrastructure redundancy purposes
for security purposes. He noted that FERC has full flexibility
in reviewing projects to determine what is in the public
interest, in terms of sizing, location, and alignments with
other rights-of-ways. He reiterated that FERC performs its
review by engaging everyone that has a role in the project,
identifying the issues, and resolving the issues.
2:29:14 PM
REPRESENTATIVE GATTO inquired as to whether FERC would ever "act
as a go-between." He opined that it did not seem "fathomable"
that the state would have two lines and he wondered if FERC has
a vested interest nationally to make a determination between two
applicants that would build the same line.
MR. ROBINSON answered that the commission has an office that
acts to facilitate those kinds of decision making processes. He
related that the market decides in instances in which two
projects that basically serve the same purpose and are evaluated
as in the public's best interest. However, he said that in
instances in which a restriction is "something that drives it
down," and for technical reasons there can only be one pipe, the
FERC could make use of its administrative dispute resolution
service.
2:30:45 PM
REPRESENTATIVE KELLY inquired, with respect to the subsidy test
for the existing shippers whether the measurement is from the
initial rate or - in the case of a couple of compression
expansions - if the commission considers an increase as the
current spot on the "J-curve" below the initial rate as a
subsidy that has to be checked.
MR. WRIGHT answered that it is as simple as, "Here's the rate
that's in the tariff." He noted that if more dollars are added
to the rate base and more volumes are added "in the numerator,"
that once the math is performed that if it yields a higher rate,
it is a subsidy.
REPRESENTATIVE KELLY related his understanding that it is the
latter; that an existing shipper would have the advantage of the
compression if that resulted in a lower rate.
MR. WRIGHT answered, "If it gave you a lower rate, yes."
REPRESENTATIVE KELLY inquired as to whether it is possible that
both applicants will have "finance ability" [TransCanada and
Denali Project] available and FERC determination will be key.
He posed as scenario in which one applicant has a ratio of 75:25
with $3 tariff; and the other applicant has a ratio of 60:40
with $3.50 tariff. He further inquired as to whether either
party would have an advantage given the final rates to consumer
is also important to FERC.
MR. WRIGHT answered that a rate differential would be taken into
account by the commissioners during the voting process. He
opined that if financing is not an obstacle, it would come down
to the authorization for construction, which would not be
approved until "you have volumes under contract."
2:34:07 PM
SENATOR WIELECHOWSKI recalled discussions in which government
actions halted a project and the importance of "first dollar"
being spent. He inquired as to whether Mr. Robinson could
comment on if the state would be in a better situation or a
worse situation by granting TransCanada a license.
MR. ROBINSON prefaced his answer by saying, "We're not experts
in the state process and won't comment on it. We just want an
applicant." He opined that the legislature has to review that
and decide what is in the state's best interest. From FERC's
perspective, moving forward with a pipeline project translates
into "having somebody to work with under pre-filing." He
stressed the emphasis should be "getting somebody up and moving
on an application and then working the problems as the problems
arise." He opined that more problems will arise "than anybody
in this room can contemplate or project on what they might be."
He further opined that FERC will resolve problems as they arise
to keep the project moving.
2:35:48 PM
SENATOR WIELECHOWSKI asked for clarification of why the
producers would want to build a pipeline that would earn a much
lower rate of return than what the producers would typically
make on "an upstream."
MR. ROBINSON said, "That's not my business. I don't know why
they would do it. You'd have to ask the people that are doing
it." In further response to SENATOR WIELECHOWSKI, Mr. Robinson
said, "I mean, you can speculate, but it'd just be that." He
surmised that it could be that the producers want to have a
greater degree of control given the significance of the
investment, or that it could be due to tax rationale.
2:37:03 PM
SENATOR WIELECHOWSKI inquired as to whether FERC commissioners
are appointed on a staggered term. He further inquired as to
whether the current appointees or future appointees will make
the decision.
MR. ROBINSON answered that each appointee serves a five-year
term. He noted one term expires June 30th of each year. He
pointed out that some commissioners do not serve their full
terms. He opined that it is not predictable who the
commissioners will be since the date that FERC will make
decision is also not known.
SENATOR WIELECHOWSKI inquired as to whether the presidential
election will have an impact.
MR. ROBINSON reiterated that energy isn't a "party thing," but
that it is a regional thing. He opined that an amazing amount
of consensus on infrastructure issues at the commission. He
offered an example in which a tremendous Democratic opposition
arose with the Broad Water LNG project in the Long Island sound,
yet the 3 Democrats and 2 Republicans serving on FERC
unanimously approved the project.
2:39:41 PM
MR. ROBINSON, in response to Representative Ramras, explained
that FERC offers a process that has been tested over time and
has been found to been found to be an effective way of making
decisions that are in the public interest and in "getting
pipelines built." He recapped the proven record and FERC
process that works. He suggested that the state contact other
pipeline companies to gain a sense of the effectiveness and
process that FERC uses. He opined that if the project is
worthwhile, if the state is willing to work with FERC and the
public to make the project as "palatable as possible," that the
commission will efficiently review the project, and if it is in
the public interest, will authorize the project. He further
offered that the commission then becomes a proponent for
satisfying the public interest by "getting that project built,
consistent with the requirements of the commission."
2:42:16 PM
REPRESENTATIVE SAMUELS recalled that part of the TransCanada
proposal is that the gas must go into their hub as opposed to
"new pipe," such as from the Alberta border to Chicago. He
inquired as to what caveats that could be placed on firm
transportation (FT) commitments - if the State of Alaska wanted
to take FT or one of the oil companies wanted to take FT - and
how FERC would view that contingent language that the gas must
go into the TransCanada hub. He further asked, "In your
experience - across the country - is FT given - "we'll ship the
gas 'if', and in particular, with that example, is that they'd
be required to put the gas into somebody else's pipe at a given
rate."
MR. WRIGHT answered:
Well, that sounds like a condition that would have to
go into FERC jurisdictional tariff, in theory, i.e.,
you want FT service through Alaska it has to go into
the hub. And I just don't see that as flying. I
mean, that's my personal opinion. I don't see us
restricting the transportation as such.
Transportation in Canada - that might be a whole
different thing. That's the key. We wouldn't bind
ourselves for transportation on another - one pipeline
for transportation on another pipeline in another
country.
The committee took an at-ease from 2:43:55 PM to 3:07:56 PM.
3:08:41 PM
REPRESENTATIVE FAIRCLOUGH inquired as to whether a $500 million
subsidy as part of an application would be viewed as an
advantage over another application.
MR. ROBINSON answered that he could not perceive that it would
give an applicant an advantage, in terms of moving forward on an
application. However, if some aspect of the $500 million that
affected the ultimate project and the project was "fully
vetted," he said he thought the commission could consider it.
Although, he noted that he did not know what that might be.
REPRESENTATIVE FAIRCLOUGH asked Mr. Robinson to elaborate for
the public the effect a $500 million subsidy would have on the
tariff.
MR. ROBINSON characterized the $500 million subsidy's effect on
the tariff rate as an issue that is fair to determine and what
it would mean to the consumer. He said that he wouldn't
speculate at this time. In further response to Representative
Fairclough, Mr. Robinson said that in terms of any effect on the
consumer that he would look to a future commission to determine
how it would treat any subsidy.
3:10:22 PM
REPRESENTATIVE HAWKER recalled Representative Samuel's question
with respect to not being able to contractually obligate
shippers to ship on other lines under certain circumstances. He
asked for clarification on the question and the answer since it
seems relevant, but he said he wasn't sure if he fully
understood the question.
3:11:04 PM
REPRESENTATIVE SAMUELS recapped his question as relating to the
TransCanada's requirement that it would build the pipeline, but
that the gas had to go into its hub.
MR. ROBINSON interjected and said:
I don't think the commission has a history of
providing in their tariff revisions, limitations on
'where the gas can go.' Now, as a matter of the
certificate, it will have an end point - the
certificate goes to "X" - and in this particular
instance our certificate would authorize up to the
Canadian-Alaska border. And that would be basically
that the tariff provisions would be in that context.
The point that we tried to make in responding earlier
to Representative Samuel's question is that what
happens in Canada is something that would be specific
to the NEB and the tariff provisions there; how they
might treat that and what they may put into a tariff
provision or allow to be put into a tariff provision
is something we have no role in. Did that clarify, I
hope.
3:12:14 PM
REPRESENTATIVE HAWKER said that he thought it was a different
question, but noted that Mr. Robinson's answer was very clear.
He continued:
My actual, original question...[relates to] the
interplay and your perception of your regulatory
counterparts on the Canadian side of the border. You
discussed the role of the NEB at some length here -
the Memorandums of Understanding and well established
relationships with those- but another issue that has
come up in this discussion of the AGIA proposal is the
presumption that the NPA would be regulatory authority
in Yukon, and of course as we sit and listen to all
sides of these discussions; certainly the proposer,
TransCanada, believes it has an exclusive authority
granted under that Act some time ago in the treaty
with the U.S. Listening to other highly competent
qualified pipeline operators up there, particularly
those operating the Alliance Pipeline; they disagree
very strongly with that presumption. I'm wondering,
does - do you folks at FERC- can you shed any light on
that for us or open any doors?
MR. ROBINSON replied no. He related that FERC does not have a
position as to how the regulatory authority will function in
Canada. In further response to Representative Hawker, Mr.
Robinson answered that he does not want to speculate on whether
that process will be a "sticky wicket" that would probably
require litigation to resolve. He maintained that he could not
speculate how the regulatory oversight would "play out" in
Canada.
3:14:04 PM
CHAIR HUGGINS announced that the committee has invited the NEB,
but that they have not come forward. However, he offered to
continue to pursue an invitation for them to participate.
3:14:21 PM
REPRESENTATIVE KERTTULA related her understanding that FERC has
a different standard for "public interest." She inquired as to
whether the state must take its own actions in instances in
which the state identifies a matter as being in the public
interest, such as the offtake points.
MR. ROBINSON answered that the state has a right and
responsibility to make it clear to FERC in its process what it
believes to be appropriate with regard to the construction of
its project. He characterized that approach as "very
reasonable." He pointed out that FERC sometimes has 1,000
people in opposition to a project and that the FERC evaluates
comments taken as part of its determination.
3:15:38 PM
REPRESENTATIVE KERTTULA asked, "Would you condition the
certificate upon getting the pipeline through Canada and back
out to us? Would you make that kind of a condition, having the
authority to cross Canada?"
MR. ROBINSON related his understanding that Representative
Kerttula was asking if FERC might condition the project; that it
would not allow the pipeline to be constructed unless there was
satisfaction of some condition that said, "The proponent for the
project has been able to demonstrate to the commission that
there is also going to be a Canadian pipeline and an exit to the
U.S. Yes, that FERC could do that," he said.
3:16:31 PM
REPRESENTATIVE GUTTENBERG related his understanding that FERC is
regulating the pipeline from Prudhoe Bay to the Alaska-Canadian
border and from the point the pipe comes out of Canada enroute
to Chicago or other markets. He inquired as to how FERC "deals
with that gas" and whether its [authority extends] in totality
of that line or just when the line re-crosses the border enroute
to Chicago or Boston.
MR. ROBINSON answered that FERC takes responsibility [in the
U.S.] for the pipeline and sets tariffs and certificates
expansions for new lines.
REPRESENTATIVE GUTTENBERG asked, "But would you look at the
upstream, and I mean "way upstream" that part south of the
border in addition to that part north of the border."
MR. ROBINSON answered that FERC can consider impacts associated
with developing a pipeline in Canada since it in the public's
interest and would be a reasonable outcome of the FERC's
certification of a pipeline in Alaska since something "may
disturb it." He characterized the process as a "two-tier down"
consideration. He offered that sometimes FERC is asked to
consider what effect a proposal might have on the development of
"congestion in a town" that would be economically stimulated by
the project's presence. He surmised that FERC would consider
that issue. However, he opined that it would need to be a
significant concern and that it would be "a secondary response"
associated with the primary review [of the project].
3:19:05 PM
REPRESENTATIVE GUTTENBERG recalled a discussion of the gas
treatment facility in Prudhoe Bay. He offered that the pipeline
would "hopefully be open access." He related that the gas
treatment facility "may or may not" be part of the project. He
inquired as to whether FERC would regulate the facility for open
access. He surmised that "for many of us" the ability to "get
into pipeline" happens at a point prior to the pipeline, that it
happens when "you are allowed to get access to the facility" and
the tariff rate at that point.
MR. WRIGHT answered that FERC does not regulate gas treatment
facilities since they are upstream of the transmission. He
noted that FERC authority relates to gas transmission. Thus, if
gathering lines take gas from the field to a gas treatment
facility, that generally would not be under FERC jurisdiction,
which begins at the "tailgate" of the gas treatment facility at
the point gas is transmitted [through the pipeline.]
MR. ROBINSON pointed out the unique status of the [Alaska
gasline] project and that the Congress has established
incentives to ensure exploration and pipeline expansion. He
stated that it could be presented to FERC that [the gas
treatment plant] might be used to limit that development of gas
and FERC might examine that in terms of defining what
constitutes "transportation" and what constitutes "gathering."
3:21:08 PM
SENATOR MCGUIRE related her understanding that FERC has an
outward public record; the part that is subject to potential
challenge and review, but she said she assumes that FERC is
involved in many discussions in order to make its
determinations. She expressed concern that by offering the
subsidy/investment, the state may be "tying our hands." She
inquired as to whether AGIA's provision that prohibits the state
from entertaining any competing projects causes any concern for
FERC.
MR. ROBINSON answered that he is not commenting on AGIA, because
"it's really not what we do." He stated that FERC process is to
"shine the light on every issue," and to search out issues to
discuss, particularly with those who have opposition to a
project so that FERC has an opportunity to mitigate the issue
and find the best project for the consumer.
SENATOR MCGUIRE inquired as to whether if FERC has precedence
and experience in conditions such as AGIA. She maintained her
concern that the statutory framework obligates the state to
refrain from other competing applicants. She asked, "How would
you deal with it?"
MR. ROBINSON related that FERC has frequently encountered
situations in which the state's position is in opposition to a
project. He said that he cannot think of an instance in which a
state has indicated that it would not participate. He opined
that if a group refuses to participate that it would not stop
FERC process. He further opined that FERC is very good at
surmounting hurdles. He highlighted that due to the Congress's
actions that FERC will do everything that it can to develop the
record, resolve issues, and allow FERC Commission to vote on
whether a particular proposal is in the public interest.
3:27:12 PM
REPRESENTATIVE COGHILL related his understanding that the
proposal the state is proposing is to enter the Alberta Hub and
whether that is feasible with respect to the likely rate for the
Alaska section, the provincial sections and a part "that spreads
across the hub." He inquired as to how FERC reviews what passes
through the Henry Hub, which he surmised might provide
information to assist the state.
MR. WRIGHT answered that the Alberta Hub and Henry Hub are two
different things. He related that the Alberta Hub is basically
the pipeline in Alberta. He further said:
The Henry Hub is the point at which approximately 16
different pipelines cross; that's a pricing point for
the New York Mercantile Exchange for natural gas
futures. People key off that in terms of contract;
figure out basis differentials, all kinds of financial
trading instruments. It's not really part of gas
contracts, when they say, 'I'm going to transport my
gas from point "X" to the Henry Hub.' It's not that
kind of thing. What they use the Henry Hub for is,
'I'm going to agree to pay a rate that is equal to the
Henry Hub plus something.' I think the Alberta Hub -
and anyone can correct me if I'm wrong and I may be -
is just an idea of getting the gas from the Alaska-
Canada border into the existing Alberta infrastructure
to be transported by the existing TransCanada
facilities from that point on.
REPRESENTATIVE COGHILL offered "that helps and it doesn't help."
He says that transportation costs are assumed. He said, "You
don't follow the molecules, you just follow the volume, is the
way I understand it." He further offered that the legislature
is trying to determine if it's reasonable. He continued:
And we'll probably be presented, somewhere along the
line with the Denali Proposal that is a single line
that goes past that. And hence, the question is, can
you force them to take it in through the NEB and what
does that mean for the tariff rate? That's one of the
questions we'll have to discern. I was looking for
some comparison and it doesn't sound like this is a
comparison.
MR. WRIGHT agreed. He encouraged the legislature to discuss
Canada's pricing with the NEB or the appropriate Canadian
agency.
3:30:28 PM
REPRESENTATIVE DAHLSTROM offered her concern that the
representatives from the NEB are not present at the hearings.
She related her understanding that the NEB reports to another
Canadian agency that has jurisdiction over the NEB, but that the
agency with oversight is currently understaffed and not
available to participate [at the legislative hearings] at this
time. She inquired as to whether FERC could comment.
MR. WRIGHT said,
What I know is that the Northern Pipeline Act (NPA)
has controlling [authority] which is comparable to
Alaska Natural Gas Transportation Act, {ANGTA 15
U.S.C. §§ 719 et. seq] for us, and that administers
whoever would transport Alaska gas. As I understand
the Northern Pipeline Act, I want to say it's probably
in the hands of the interior ministry and they may
make an assignment, which logically would be NEB
personnel.
REPRESENTATIVE DAHLSTROM expressed interest in expanding the
committees' invitation to other entities.
REPRESENTATIVE SAMUELS advised that other entities were invited
such as the NEB and the broader government policy entity, as
well as the U.S. Department of Energy. He noted that to date
these entities have declined to participate.
3:33:21 PM
REPRESENTATIVE ROSES recalled an earlier question by
Representative Kerttula, with respect to whether a stipulation
could be added to a certification that required delivery of gas
to the Lower 48. He further recalled that the answer was that
FERC could stipulate. He inquired as to what the likelihood is
that FERC would do so.
MR. ROBINSON answered that FERC has the ability to place any
condition that it determines is in the public interest into a
certificate. He said that it is a different question as to
whether that stipulation [for gas delivery to the Lower 48]
would be found to be in the public interest. He continued:
I can see the possibility of the commission deciding,
'look, our business is in what is necessary to get a
pipe built in Alaska and leave it to the Canadians and
the benefits they might see for a pipeline going
across Canada, to do what it is that they do. We're
not going to put any preconceived notions on where
it's got to end up, or what has to happen in Canada.
A commission easily could do that. It doesn't mean
that we couldn't. It's just not necessarily something
that the commission would necessarily do.
REPRESENTATIVE ROSES related his understanding that it is
possible FERC could [stipulate gas delivery to the Lower 48] but
that it is highly unlikely it would do so.
MR. ROBINSON answered that he never tries to predict what a
commission that doesn't even exist might do. He continued:
But, the history of it is that it's probably going to
be a big enough task with enough controversy
associated with it - to get a pipeline authorized and
under construction in Alaska - to try to extend the
commission's regulatory oversight into what happens in
Canada, even if we could do that through our own
tariff mechanisms is probably something that wouldn't
happen.
REPRESENTATIVE ROSES stated that he is attempting to sort out
the benefits and detriments to passing AGIA, not trying to put
FERC "on the spot." He related his understanding that the only
control is up until the pipeline arrives at the Canadian border
and that anything else is pure speculation in terms of tariff,
expansion rates, or transportation costs to the Lower 48. He
further related his understanding that FERC will make its
decisions based on an application and the record it develops,
regardless of state's position.
3:37:17 PM
MR. ROBINSON offered that he hopes he made it clear that FERC
would give great weight to state's position. He said that it is
not because the state's position doesn't matter, rather that
ultimately everyone's position matters. He further stated that
the only way it can dismiss a position, is if the record is
developed that the position isn't supportable.
3:38:12 PM
REPRESENTATIVE ROSES said:
I didn't mean to state that the state's position
doesn't have any merit whatsoever, or had no weight.
What I meant to say is that it doesn't have any
particularly more weight than any other position would
be in terms of somebody bringing another position
forward, or a counterproposal that would come forward.
3:38:37 PM
REPRESENTATIVE DOOGAN opined that while FERC acts in the public
interest, that identifying the public interest is "a slippery
notion." He inquired as to whether FERC would consider a matter
in the public interest if all the principal parties were in
agreement such as the state, the pipeline company, the existing
shippers, the explorers, or anyone involved in the question.
MR. ROBINSON related that ultimately FERC commissioners have to
determine by its vote what is in the public interest. He said,
"If you have everybody lined up, my history at the commission
has been that the commission 'really really' likes that. And
that they have a great tendency to vote the position of the
public interest consistent with that agreement that involves all
the parties. There is a huge history of that."
REPRESENTATIVE DOOGAN asked whether it is in the state's best
interest to limit the number of other positions that would be
presented to FERC.
MR. ROBINSON answered, "We actively pursue quite the opposite of
that and irrespective of what one party may try to do." He
reiterated that FERC recruits other parties in order to make the
process visible and then lets the best argument win.
MR. WRIGHT stressed that the pre-filing process entails
identifying all the issues and attempting to resolve the issues.
REPRESENTATIVE DOOGAN related his understanding that consensus
is the best and strongest position and that anything short of
complete consensus isn't an advantage.
MR. ROBINSON clarified that it must be consensus that is legal.
He said, "You can't all agree that we're going to break the law
and do this." He related that some filings of settlement
agreements before FERC from one party. He opined that even if
.9 of the parties can agree, if the .1 opposing party has the
merit from the record, that FERC has the ability to decide in
favor of the .1 position. He offered that FERC hopes to
facilitate consensus in its process and he strongly encouraged
that effort to reach consensus.
3:43:41 PM
CHAIR HUGGINS asked for clarification regarding the Alliance
Project.
MR. WRIGHT answered:
The Alliance Project was a group of gas producers in
British Columbia and Alberta that, for lack of any
other explanation said, 'We've got to get this gas to
market. Let's build a high-speed - being a high-
pressure- pipeline from that area to Chicago.'
Basically, there's no delivery points off of it; all
the liquids stay in it; it goes in the pipeline, goes
through Canada, Alberta, maybe even Saskatchewan, I'm
not sure, it goes into the U.S. ends in Chicago, and
has a gas treatment facility - I kind of mentioned
before - that is at the end of the line in Chicago.
It was a shining example of Canadian/American
cooperation, in terms of getting the line being
timely; it matched up at the border - that was a good
thing- it was same time period. It wasn't like we
were advancing far ahead of our compatriots in Canada.
Again, it's probably 1 Bcf/d or more pipeline,
traveling somewhere over 2,000 pounds per square inch.
So, it's been a good thing.
3:45:15 PM
CHAIR HUGGINS inquired as to whether FERC generally sustains Mr.
Robinson's recommendations.
MR. ROBINSON said:
I think the commission, through the years, has
demonstrated that they have a lot of confidence in the
expertise and the rigorous approach that staff brings
to the authorization of pipelines. They review our
work very carefully. They make modifications where
they think it is appropriate. We, being staff, have
the advantage of knowing the history of the commission
and what it is that they think are important to them
and we make sure we cover that. If we're doing our
job well, then the commission has an opportunity to
affirm our recommendations, but they also have every
opportunity to say, 'Boy, did you all get it wrong,'
and go a completely different direction.
3:46:27 PM
CHAIR HUGGINS asked FERC's staff presenters if they would like
make summation comments.
3:46:34 PM
MR. ROBINSON expressed appreciation for the opportunity to
clarify FERC. He related that as FERC staff, that he and Mr.
Wright do not have all the answers. He said, "It's because
nobody has all the answers for this." However, many issues will
be worked out over time. He continued:
It's time to get started. It's time to start moving
down the road to figuring out the issues and figuring
out the answers using our process to develop the best
project we possibly can. That's the commitment we'll
make at FERC to the citizens of Alaska, to the State
of Alaska, to the producers, to the shippers, that
everybody will have an equal opportunity to influence
that decision and come up with what best serves all
parties. We've done it a long time and we'll do it
here. Just get us an application, get us the parties
and we'll make it happen from there with everybody,
including everybody in the State of Alaska.
MR. ROBINSON thanked the committees for the opportunity to
explain FERC's process. He offered to answer further questions.
3:48:05 PM
MR. WRIGHT thanked the legislature for the opportunity to
testify. In conclusion, he said, "The world is not waiting for
Alaska, so Alaska let's go."
The committee took an at-ease from 3:50 p.m. to 3:55 p.m.
3:55:44 PM
MARK JOHNSON, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community, & Economic Development
(DCCED), relayed that in contrast to the RCA, the FERC takes
direction from federal legislation that sets forth a specific
framework for handling applications for an interstate pipeline;
the RCA instead takes direction from Alaska statutes, has been
developing regulatory history since statehood, and follows case
law that applies.
MR. JOHNSON noted that the presenters from the FERC who
testified earlier today were FERC staff and, as such,
acknowledged that the FERC itself might not follow their
recommendations when making a particular determination in any
given case. In contrast, he and the other commissioners that
present information to the legislature are actually the ones
responsible for making the decisions. Thus, any statements the
RCA commissioners make in legislative committee hearings are
sometimes specifically referred to in filings. As a quasi-
judicial entity, the RCA is necessarily constrained in its
responses to questions; for example, the RCA would have declined
to answer the vast majority of the questions that were posed
earlier to the FERC staff.
MR. JOHNSON said that the RCA is a "creature of statute" and
performs those duties that the legislature authorizes under
strict statutory guidelines. He then related that Janis Wilson
has had 30 years' experience in regulating oil and natural gas
pipelines in Alaska, and is the lead RCA commissioner with
regard to pipeline matters. He mentioned that at one time in
Alaska there were two distinct commissions - the Alaska Public
Utilities Commission (APUC), which regulated utility matters
[and later became the RCA], and the Alaska Pipeline Commission,
of which Ms. Wilson was a member; the Alaska Pipeline
Commission's duties were merged into the APUC and subsequently
inherited by the RCA.
4:02:16 PM
JANIS WILSON, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community, & Economic Development
(DCCED), noting that the Alaska Pipeline Commission merged into
the APUC in 1981, observed that it has been a very long time
since first the APUC, and now the RCA have regulated pipelines.
Referring to a PowerPoint presentation, specifically to a slide
outlining what the RCA regulates, she noted that the RCA
regulates both utilities and pipelines, and in this respect is
different from the commissions in many other states that
regulate only utilities. Furthermore, the RCA can regulate a
natural gas pipeline under two different statutes, as either a
pipeline or as a utility - under AS 42.05 for utilities, or
under AS 42.06 for pipelines - and the RCA determines which
statute to regulate a particular pipeline under - whichever
statute fits best with the public interest.
MS. WILSON said that the RCA has primarily regulated [natural]
gas pipelines under AS 42.05; for example, all the ENSTAR
Natural Gas Company's pipelines have been regulated under AS
42.05 as part of the "ENSTAR gas distribution utility."
Recently, however, pipelines in Cook Inlet that transport gas
have voluntarily submitted to the RCA's regulatory jurisdiction
under AS 42.06. She noted that the FERC, in contrast, regulates
oil pipelines under the Interstate Commerce Act and regulates
gas pipelines under the Natural Gas Act. The RCA's relationship
to the FERC and where the RCA's jurisdiction "touches and begins
and ends" is determined by the federal Act. The legislature has
given the RCA the authority to regulate oil and gas pipelines up
to the point at which the RCA's jurisdiction touches federal
jurisdiction, so one must look to the federal Act to determine
where the RCA's jurisdiction is, which is very different for oil
pipelines than for gas pipelines, she offered.
MS. WILSON explained that with regard to the Trans-Alaska
Pipeline System (TAPS), for example, the RCA sets the intrastate
rate from Prudhoe Bay to [Golden Valley Electric Association's
(GVEA's)] connection near Fairbanks and North Pole, and the
intrastate rate to the Tesoro refinery in Nikiski, whereas the
FERC sets the rates that apply to all the shipments
[transported] to the Lower 48 or elsewhere. So although it
might seem that something similar would apply to gas deliveries
as well, that's not the case because the Natural Gas Act
provides exclusive jurisdiction to the FERC to regulate
interstate gas pipelines. Therefore, the RCA really doesn't
have a role with regard to the main line, but does have an
important role regulating any gas that comes off the main line
and is subsequently delivered and consumed within Alaska - that
is the extent of the RCA's jurisdiction with regard to gas. So
the RCA would regulate the rates on a spur line or a Y-line, but
not the intrastate rates from Prudhoe Bay to the offtake points
within the state - that would fall under the FERC's
jurisdiction.
4:07:01 PM
MS. WILSON said that this wasn't truly clear before the
enactment of the Alaska Natural Gas Pipeline Act (ANGPA) wherein
the RCA's jurisdiction was granted by Section 108(a) such that
if the RCA regulates "those rates and services," they will not
be subject to FERC jurisdiction, but will instead fall
exclusively under the RCA's jurisdiction. She indicated that
Appendix P1 - Major U.S. Regulatory Approvals - of the
TransCanada application contains no mention of regulatory
approval by the RCA. This is correct, she added, because the
main line doesn't need any authority from the RCA to proceed.
REPRESENTATIVE KELLY questioned whether the RCA would regulate a
Y-line going to Valdez that produces LNG for transport outside
of Alaska.
4:09:32 PM
MS. WILSON characterized that as an unsettled question. If the
liquefied natural gas (LNG) were to go to Asia, for example,
then it is less likely that the FERC would assert jurisdiction
over that Y-line. The state currently exports LNG to Asia and
the pipelines that feed that LNG plant are not regulated by the
FERC even though the plant itself needs federal approval from
the Department of Energy to export. However, she added, "This
being a much higher profile and larger project, we are not
certain that the FERC would not find some way to assert
jurisdiction over [it], and certainly that might be true more
especially if those exports from Valdez actually went to the
United States or to the United States via Mexico."
REPRESENTATIVE DOOGAN - noting that there has been some
discussion regarding having offtake points on the main pipeline
for propane that could be delivered to rural Alaska - asked
whether the RCA currently has the authority to regulate the
delivery of that product after it leaves the main pipeline or
whether the RCA would need to be given additional authority by
the legislature.
MS. WILSON, noting that she couldn't speak for the RCA as a
whole, said:
This is something that would probably be briefed by
parties in front of us in an adjudicatory docket, and
we would make a decision as to where our jurisdiction
lay on that; we would certainly feel more comfortable
if you would give us the explicit authority - ...
assign us that task specifically if you wanted us to
do that.
MR. JOHNSON agreed that the preferable approach would be for the
legislature to explicitly extend that authority to the RCA.
[Not on the legislature's official recording, but obtained from
another audio source was the following:
REPRESENTATIVE DOOGAN surmised, then, that with regard to
alternative delivery systems, there might still be some question
with respect to the RCA's authority.
MR. JOHNSON concurred.]
4:13:30 PM
MS. WILSON [in response to a question not captured on the audio
recording] said, "Again, ... that's a very unsettled issue that
we have discussed from time to time amongst ourselves at the
commission." The RCA's authority is really for pipelines, but
it also has authority over adjacent facilities; in this
instance, however, the facility would not be adjacent to the
RCA's authority unless the legislature were to explicitly give
the RCA authority over "gathering lines" or over the gas
treatment plant itself.
SENATOR THERRIAULT asked whether the RCA regulates the existing
Kenai LNG plant or has the authority to do so.
MR. JOHNSON answered that the RCA does not currently regulate
that plant, nor has the question of whether the RCA ought to
regulate that plant been raised with the RCA. He declined to
answer whether the RCA currently has the authority to regulate
such a plant.
MS. WILSON added that although she's never really considered the
issue, it seems that [that plant] is not really a part of a
total system of pipe that the RCA would regulate as a pipeline.
REPRESENTATIVE GRUENBERG said that it sounds like there are a
lot of unsettled questions regarding the RCA's jurisdiction and
asked what they are with respect to "these various projects."
MR. JOHNSON indicated that a consultant for the "gasline
authority" has conducted an analysis of deficiencies in the
RCA's regulatory and statutory framework, but the RCA itself has
not due to its workload and a shortage of resources.
MS. WILSON, in response to a question, indicated that the RCA
has a six-month deadline in which to process a certificate of
public convenience and necessity, but for rate cases, when
regulating a pipeline under AS 42.06, the RCA doesn't have a
specific deadline.
MR. JOHNSON added that the Alaska Superior Court has interpreted
the statutory deadlines such that should the RCA fail to act
within the deadline, the RCA is deprived of jurisdiction and the
application is deemed to have been granted. He characterized
that as an unproductive way to do business, and opined that that
default position doesn't serve the public interest.
MS. WILSON offered her belief that the statutory deadline
applies only to an application under AS 42.05; under AS 42.06
there is no automatic granting of the application [because] the
six-month deadline is in regulation as opposed to statute.
4:19:53 PM
REPRESENTATIVE FAIRCLOUGH, offering her view that the Alaska
natural gas pipeline wouldn't be a utility even with five
offtake routes, asked whether AS 42.05 or AS 42.06 would apply.
MR. JOHNSON posited that since that might become a contested
issue, the most prudent course would be to decline to answer
that question at this point; the RCA would only want to respond
to such a question on the basis of a fully developed record.
REPRESENTATIVE FAIRCLOUGH argued, however, that it might behoove
the state to clarify that point first in order to avoid "gaming"
of the system. Should the RCA choose to regulate the pipeline
under AS 42.05, she said, she is wondering whether the RCA has
sufficient staff to respond within the six-month deadline.
MR. JOHNSON acknowledged that the RCA isn't adequately staffed
to answer questions in a timely fashion; the RCA's resources are
a function of the regulatory cost charge (RCC), which is
assessed annually and has a statutory cap. He said, "We do not,
in my opinion, have adequate resources under the current RCC cap
to conduct the business we currently are charged with doing,"
and so regardless that the RCA is well suited to be making
determinations regarding a natural gas pipeline, the kinds of
resources necessary for the RCA do so would be extraordinary.
He opined that the RCA is not funded from the state's general
fund and currently faces severe resource limitations. He
offered that it would be an interesting personal and
professional challenge to be involved in this type of inquiry
and decision making process, which he opined he would be
delighted to be involved in at a professional level. However,
the RCA would need a lot of resources and as much direction,
specificity, and clarity from the legislature as possible to
undertake this project.
4:24:02 PM
REPRESENTATIVE FAIRCLOUGH remarked that the legislature and
administration should consider the issue of adequate funding for
sufficient agency personnel necessary to move the project
forward. She then asked for clarity regarding the possible
[tariff] rates required under AGIA - a flat rate as opposed to
distance-sensitive rates.
MS. WILSON replied:
I can only speak to that in terms of our precedent,
and we, unfortunately, have very little precedent
under [AS] 42.06 for gas pipelines, but we have a
great deal of precedent in [AS] 42.06 for oil
pipelines, and we have set distance-related rates.
However, we don't have that many points on the TAPS
..., which is the line we've set distance-related
rates on; we have a $.01 difference, I think, between
the "Petro Star connection" that goes to the [Petro
Star, Inc.] refinery and the Valdez terminal, and we
have quite a difference, about half for that, that
goes to the Golden Valley [Electric Association]
connection at North Pole.
REPRESENTATIVE FAIRCLOUGH asked whether there would be a
difference [in tariff] for a common carrier as opposed to a
contract carrier, and, if so, whether that would impact the
RCA's decision-making process regarding setting tariff rates.
MS. WILSON declined to answer. She noted, though, that the
tariff to the offtake point on the main line is set by the FERC,
not the RCA, but that once the product leaves the line and goes
elsewhere by pipeline, then the RCA sets the tariff on "that
further pipeline." So whether a differential rate would apply
between Barrow and Fairbanks will be determined by the FERC.
4:28:21 PM
REPRESENTATIVE DAHLSTROM mentioned possible future legislation
that would address the previously mentioned six-month deadline,
and acknowledged the challenges faced by the RCA with regard to
staffing, workload, and resources.
REPRESENTATIVE FAIRCLOUGH asked how the RCA will ensure that any
savings realized by applying distance-sensitive [tariff] rates
get passed on to the consumers.
MR. JOHNSON said that in establishing [tariff] rates, the RCA
attempts to ensure, as best it can, that those who invest in a
facility receive an adequate rate of return, and that the rates
are just and reasonable. And although the RCA will not have any
say in where the gas ultimately gets sold, the RCA will still be
sensitive to the resulting tariff rates because of their
implications for consumers. In the end, the RCA must ensure
that an operation remains "a going concern," and there will be a
variety of things to consider; for example, for an oil pipeline,
there are royalty implications to consider when setting the
tariff. The complexity of the issue precludes him from
providing a more definitive answer at this point in time, he
added.
4:33:13 PM
REPRESENTATIVE FAIRCLOUGH asked whether the legislature can do
anything to ensure lower prices for gas used in-state.
MR. JOHNSON indicated that perhaps having more legislative
guidance could be of assistance to the RCA. In closing, he said
he believes that as an institution, the RCA is well-suited to
make the required decisions, though the legislature may wish to
provide the RCA with more resources as well as more statutory
authority and guidance.
[HB 3001 and SB 3001 were held over.]
ADJOURNMENT
There being no further business, the joint meeting of the House
Rules Standing Committee Subcommittee on AGIA and the Senate
Special Committee on Energy was adjourned at 4:40 p.m.
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