Legislature(2001 - 2002)
09/19/2001 09:09 AM Senate NGP
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA LEGISLATURE
JOINT COMMITTEE ON NATURAL GAS PIPELINES
September 19, 2001
9:09 a.m.
SENATE MEMBERS PRESENT
Senator Torgerson, Chair
Senator Kelly
Senator Olson
SENATE MEMBERS ABSENT
Senator Halford
Senator Ellis
HOUSE MEMBERS PRESENT
Representative Green, Vice Chair
Representative Ogan
Representative Davies
Representative Porter
Representative Chenault
Representative Fate
OTHER MEMBERS PRESENT
Representative Lancaster
Representative Dyson
Representative McGuire
COMMITTEE CALENDAR
Discussion of Producers' Legislation:
Patrick Coughlin, Special Consultant to the
Senate Resources Committee
Producers Team:
Mr. Ken Konrad, Senior Vice President
Business Unit Leader - Alaska Gas
BP Exploration Alaska Inc.
119 Second Street, B
Juneau AK 99801
Mr. Joseph Marushack, Vice President
ANS Gas Commercialization
Phillips Alaska, Inc.
P.O. Box 100360
Anchorage AK 99510
Mr. Michael Hurley
Alaska Gas Producers' Pipeline Team
No address provided
Mr. John Ellwood, Vice President
Engineering and Operations
Foothills Pipe Lines Ltd.
3100 - 707 Eighth Ave. S.W.
Calgary Alberta T2P 3W8
Mr. Curt Feldman
Representing Foothills Pipe Lines, Ltd.
VanNess Feldman, P.C.
1050 Thomas Jefferson Street, NW
Washington, DC 20007
(202) 298-1930
Mr. Mark Hanley, Public Affairs Manager
Anadarko Petroleum Corporation
3201 C Street 603
Anchorage AK 99503
Mr. Bill Walker, General Counsel
Alaska Gasline Port Authority
Walker Walker and Associates
550 West 7th Ave., Suite 1850
Anchorage AK 99501
Public Testimony:
Mr. Scott Heyworth, Chairman
Citizens for the All Alaska Gasline to Valdez Initiative
P.O. Box 100531
Anchorage AK 99510
Mr. Harold Heinze
Special Assistant to the Legislative Majority
Alaska State Capitol
Juneau AK 99811
Ms. Nan Thompson, Chair
Regulatory Commission of Alaska
Department of Community and Economic Development
1016 W 6th Ave.
Anchorage AK 99501
Mr. John Katz
Director of State/Federal Relations and
Special Counsel
Office of the Governor
444 N. Capitol NW, Suite 336
Washington DC 20001-1512
Committee discussion on federal legislation
ACTION NARRATIVE
TAPE 01-17, SIDE A
CHAIRMAN TORGERSON called the Joint Natural Gas Pipelines Committee
meeting to order at 9:09 a.m. He announced that the purpose of
today's meeting was discussion of the Producers' legislation. He
said that four or five entities were working on legislation and
that he wanted to formulate the Alaska Legislature's position so he
could present it to the U.S. Energy Natural Resources Committee
meeting, which is scheduled for October 2 in Washington, D.C.
He noted that he had a letter from the Governor with 10 points, but
he told the Energy Committee that he would be writing a letter
clarifying that the Alaska Legislature does not agree with them
necessarily, since they hadn't even discussed them yet.
MR. PATRICK COUGHLIN, Special Consultant to the Senate Resources
Committee, said he was providing the committee with an overview of
the proposed legislation circulated by the Alaska Gas Producers
Pipeline Team, composed of BP, Phillips Petroleum and ExxonMobil,
entitled "The Alaska Natural Gas Pipeline Act of 2001." He will
point out differences between that Act and "The Alaska Natural Gas
Transportation Act of 1976." He said he would also reflect and
summarize the comments they have received from various parties
including Anadarko on the proposed legislation. It was not his
intent to support any of the positions. He explained:
In July of 2001, the Alaska Gas Producers Pipeline Team
circulated their proposed legislation, which I'll refer
to as their Proposed Act. Its stated purpose is "to
expedite the approval, construction and initial operation
of…transportation systems for the delivery of Alaska
Natural Gas to the Lower 48 states." The Proposed Act
purports to advance this purpose by:
1. Relying on competitive market forces to determine
which transportation system can be built and operated in
an economical manner; and
2. Providing for various measures designed to expedite
the construction and operation of that line.
The stated purpose is very similar to the stated purpose
of the Alaska Natural Gas Transportation Act of 1976,
which I'll refer to as ANGTA. That purpose is stated as
follows:
The purpose of this chapter is to provide the means
for making a sound decision after the selection of
a transportation system for delivery of Alaska
natural gas to the Lower 48 states and to expedite
its construction and operation by (1) limiting the
jurisdiction of the courts to review the actions of
federal officers or agencies taken pursuant to the
direction and authority of this chapter, and (2)
permitting the limitation of administrative
procedures and affecting the limitation of judicial
procedures related to such actions.
The similarity between the two acts continues. They both
contain similar provisions relating to the creation of a
new federal official to direct and coordinate the
permitting efforts, expediting the permit approval
process, limiting the agency discretion and limiting
judicial review.
The next topic that I want to touch upon is the selection
process that is contained in the act. The producers have
said it's designed to be route neutral and it allows for
the selection of any project. In comparison, under ANGTA,
an operator, Foothills, and a route, the Alcan route, has
been selected through a lengthy process, which included a
treaty with Canada, a presidential finding and decision
and approval by the U.S. Congress.
Although the producers' proposed act does not explicitly
repeal ANGTA, the proposed act would begin anew the
selection process of both an operator and a route. The
producers in their remarks say that this is necessary
because ANGTA has been a failure and that a competitive
market should be allowed to select a system/route rather
than government.
Foothills, on the other hand, is wary about any assertion
that a new federal law is necessary. Foothills believes
that an Alcan route can be built quickly and efficiently
under the ANGTA without any statutory changes. Foothills
is concerned about statements that a new law is necessary
because it is possible a law will not pass. If that
becomes the case, then the viability of the ANGTA has
been called into question.
Continuing on to the neutrality principle, the producers'
legislation is route neutral. It would authorize a
variety of routes. It would clearly authorize the
proposed over-the-top route and would call into question
the constitutionality in SB 164 that banned the over-the-
top route that the legislature passed last session.
On the issue of owner neutrality, the producers say that
the act is available to any party including Foothills.
What it does do that ANGTA did not do originally was to
allow the producers, themselves, to be the only owners of
the transportation system.
Initially, under ANGTA, the producers were not allowed to
have any ownership interests because of anti-trust
concerns. Later, in 1981, ANGTA was modified through a
waiver of law that allowed the producers to have some
ownership interest. However, I should note that when
President Regean forwarded that waiver to Congress for
its approval, it contained explicit conditions that the
Federal Energy Regulatory Commission, which is the agency
that is back in Washington, D.C. that deals with these
issues, which I'll call FERC, had to make an explicit
finding after consultation with the Attorney General that
the participation of the owners in the line would not
raise an anti-trust problem. FERC had to make a second
finding that in and of itself the participation would not
cause concerns by non-owners who wanted to ship on the
line, that they would not get [indisc.] and there had to
be a finding regarding capacity and expansion. So, that's
a significant difference.
Both Foothills and other commentators, including
Anadarko, have expressed some concerns that the proposed
act eliminates competitive market forces by placing
market power in the hands of the producers and allowing
them to control when and how a pipeline can be built. In
addition, Foothills asserts that ANGTA is consistent with
the market-based approach, because it allows the
commercial negotiations between the producers of the gas
and the pipeline owners for tariff terms and conditions.
The next topic I would like to address in this overview
is instate access to gas. Unlike ANGTA, the Producers'
proposed act makes no mention of in-state access to gas.
Section 13(b) of ANGTA, however, explicitly states:
The State of Alaska is authorized to ship its
royalty gas on the approved transportation system
for use within Alaska and, to the extent it
contracts for the sale of royalty gas, to withdraw
such gas from the interstate market for use within
Alaska. The FERC (the former FERC) shall issue all
authorizations necessary to effectuate such
shipment and withdrawal….
MR. COUGHLIN said the proposed act has no similar provision.
The producers proposed legislation would have significant
benefits for them in terms of reducing uncertainty and risk in
building "this very expensive pipeline." Some of these issues
relate to the withdrawn partners, whether or not there's an
obligation to construct a Dempster Lateral, whether or not
ANGTA has the ability to be modernized and how the tariff is
determined. They believe that their proposed act will
eliminate some of those risks or reduce them. Foothills, on
the other hand, has responses to most, if not all, of those
concerns.
MR. COUGHLIN compared the proposed bill section by section:
Section 1 is simply the title.
Section 2 sets forth the congressional findings that
justify the proposed act. The Findings (1) - (6) are
uncontroversial and are setting forth the need for gas in
the Lower 48 and a short history of ANGTA. Finding (6)
states that despite the passage of more than 20 years,
the parties seeking to develop the Alaska portion of the
ANGTA project have been unable to obtain the necessary
regulatory approvals or to attract the necessary
financing. This finding leads the producers to claim that
the ANGTA effort is a "failure."
Others, in their comments to us, have claimed that
Finding (6) is misleading because Foothills has obtained
many authorizations and financing could not be obtained
primarily because the producers were unwilling to commit
their reserves to the project due to market conditions in
the Lower 48.
Finding (7) states that because of the passage of time,
some of the design features of the ANGTA system are
outdated and would have to be modified. Although the
statement is true, it implies that these modifications
cannot be obtained under ANGTA. Foothills has submitted
numerous briefing materials that such modifications can
be obtained with the design framework of ANGTA.
Finding (8) states that because of a change in the
nation's energy supply situation, interest in an Alaska
project has been renewed. This finding, as well as the
entire proposed act has been criticized for ignoring an
LNG option. The Port Authority has presented the
committee with a draft bill in our Fairbanks meeting,
which incorporated an LNG option.
Findings (9) and (10) suggest that in order to assess
economic certainty, one must know whether permits and
environmental assessments can be timely obtained.
Foothills asserts that these findings ignore the ANGTA
provisions regarding expedited permitting, limits on
agency discretion and limits on judicial review, which
provide more certainty than any other federal statute.
Section 3 is the congressional statement of purpose which
I have already gone over. Again, the purpose under the
Producers' proposed legislation and under ANGTA appear to
be quite similar.
Section 4 is a definitional section and most of the
definitions are not controversial, but a few are. In
particular, it's 5, 6, and 7, which deal with Alaska gas
being transported to Lower 48 markets and addressing
facilities to be built in Alaska and Lower 48 states.
These provisions do not address Canadian facilities.
Foothills notes ANGTA, through the treaty with Canada and
an agreement with Canada, does address Canadian
facilities. Foothills suggests that the proposed act
could create confusion and significant lack of
coordination between the two countries on regulatory and
commercial issues. Additionally, other commentators again
noted that the definitions excluded an LNG option through
Alaska.
Section 5 is the section dealing with the expedited
approval process. Section 5(a) adds new definitions to
the Natural Gas Act, that is the Act that normally under
federal law governs construction of operations of
pipelines, which is administered by FERC. Again, most of
those definitions are non-controversial.
Section 5(b) amends the Natural Gas Act to provide that
FERC shall issue a Certificate of Public Convenience and
Necessity to a firm to construct and operate the Alaska
portion of a pipeline if three conditions are met. They
are:
· FERC determines that the applicant has contracted
with a "shipper" to transport Alaska natural gas to
Lower 48 markets;
· FERC determines that rates, terms and conditions
for transportation service can be established under
the Natural Gas Act; and
· FERC determines that the terms and conditions for
compliance with all applicable environmental laws
can be established in accordance with the Natural
Gas Act.
To help expedite the process, Section 5(b) requires that
the FERC makes these determinations and issue a
certificate within 18 months after the filing of an
application. Section 5(b) also adds a new section to the
Natural Gas Act authorizing the FERC to issue a
certificate to transport Alaska gas from the Canadian
border to the Lower 48 through normal Natural Gas Act
(NGA) procedures.
The Department of Law's outside counsel, Morrison &
Foerster (MoFo), and Foothills have suggested that upon a
finding that these three conditions exist, FERC must
issue a certificate. MoFo has suggested that FERC has no
other discretion. Along the same lines, Foothills
suggests that the proposed act would eliminate the NGA's
requirement that an applicant demonstrate "public
convenience and necessity."
As I stated, the first condition is that the applicant
has to show that it's contracted with a shipper and has
raised some concerns with producers whose summary says
that a shipper is "anyone who, through a contract or
otherwise, controls Alaska natural gas." MoFo and others
have suggested that this requirement gives the producers
a significant leg up on any other potential applicant
because they already control the gas. Foothills and other
commentators believe that giving the producers too much
control raises antitrust concerns. The producers have
disagreed on that point. They suggest that a shipper can
be anyone and as long as you have a contract with a
shipper, you can be an applicant. This may be something
that you wish to clarify today.
Foothills also contends that the "can be established"
language is designed to allow the applicant under the new
law to catch up with the ANGTA applicants. Under the NGA,
Foothills says that rates, terms and conditions are
reviewed to insure that public convenience and necessity
standard is satisfied before, not after, a certificate is
issued.
9:36 a.m.
Section 6 deals with environmental reviews and requires a
single EIS for what the producers define as a segment
from Alaska to Alberta and a single EIS for Alberta to
the Lower 48. In other words, there are two separate
EIS's required and the producers believe that this is a
more efficient way to deal with the environmental
statement issue.
Section 6 designated the FERC as lead agency and provides
that an EIS shall be prepared in accordance with the
FERC's regulations and procedures. It further states that
such an EIS shall satisfy the National Environmental
Policy Act (NEPA) obligations and that the scope of this
EIS shall be limited to the scope of the application. It
requires that the preparation of an EIS shall be
expedited and the draft shall be issued within 12 months
after filing and the final EIS shall be issued within six
months thereafter absent good cause.
Foothills and others assert that Section 6 in combination
with the mandatory provisions of Section 5 can be
interpreted to eliminated NEPA's requirement to evaluate
alternative routes and to eliminate the "no action
alternative before issuing a certificate. Further,
Foothills argues that the FERC could be required to issue
a certificate for an over-the-top route even though there
are more environmentally accessible alternatives.
Finally, Foothills notes that two EISs and a supplemental
EIS has already been prepared for the ANGTA project.
These reviews were prepared and concluded after numerous
opportunities for public review and comment. Congress
found that those EISs satisfied NEPA.
Section 7 creates the Office of the Federal Pipeline
Director within the executive branch. The director is
responsible for making sure the project is expedited and
for coordinating between the various federal agencies.
Section 7 basically duplicates the provisions of ANGTA
that created the Office of the Federal Inspector. That
position was later abolished by Congress in 1992, but the
functions were transferred to the Secretary of Energy,
which presumably still has that power today.
Section 8 deals with agency review and decisions. It
requires that all actions taken by federal agencies be
expedited and that actions be coordinated under the
direction of the director. Any necessary authorization
may include terms and conditions permitted by law unless
the director determines that they would impair the
expeditious construction and initial operation to
transport Alaska gas to market. Section 8 is basically
the same as Section 9(a) of the ANGTA.
9:38:50 a.m.
Section 9 - Judicial Review - limits review of a federal
agency's action in connection with the Alaska Gas Project
claims that the action violated the Constitution or was
in excess of statutory authority. It also limits the time
within which an action can be brought. Claims that the
agency's actions were arbitrary and capricious are
precluded. Section 9 requires that all claims be brought
exclusively in the District of Columbia Circuit Court and
that the court treat all claims as a matter for expedited
consideration. Section 9 of the proposed act limits
judicial review, similar to Section 10 of ANGTA.
Finally, Section 10 - Separability - provides that if any
provision of the proposed act is invalid, the remainder
of it is unaffected. This is similar to Section 16 of the
ANGTA.
9:40 a.m.
REPRESENTATIVE OGAN said page 2 of Mr. Coughlin's overview says
that the proposed act would allow an over-the-top route and would
call into question the constitutionality of SB 164 that bans the
over-the-top route as violating the federal commerce clause. He
asked if the Producers' proposal is passed into federal law, would
that supercede our state law and, "they could build a route
wherever they want."
MR. COUGHLIN answered that concerns were raised when the Alaska
legislature passed SB 164 and this, "in essence puts into federal
law the authority to construct such a route and thereby agreeing
with you, yes it would supercede state law."
CHAIRMAN TORGERSON said, "It was our legislative legal's opinion
that SB 164 was constitutional because ANGTA was in place, which in
effect selected a route that ran south and I think he went on to
say that without that, we're stepping on commerce clause problems
and that we would be forbidding interstate trade. But with the
over-the-top route authorized, it would make our language null and
void."
REPRESENTATIVE OGAN asked if he thought this would be a subject of
litigation or would it automatically supercede our state law.
MR. COUGHLIN replied that even though he is a lawyer, he thought
the Attorney General could better answer that question. He said,
"It clearly goes further in weakening the state's position on SB
164. There's no doubt about that."
CHAIRMAN TORGERSON said that was the most effective way at the
time, but the state has two or three other options that are just as
effective.
REPRESENTATIVE GREEN asked, in reference to Sections 6 - 8, if Mr.
Coughlin thought that the existing EIS could be modified slightly
to cover the [indisc.] route as opposed to a full EIS. He said the
Producers are talking about a one year expedited EIS with maybe a
six-month EIS following that and asked if Mr. Coughlin had ever
seen an EIS of this magnitude expedited in such a short time.
MR. COUGHLIN replied that he hadn't, but if this special piece of
legislation passes, it mandates that to happen. "I think that's one
of the things that the producers clearly want."
In answer to the first question, MR. COUGHLIN said:
I think that Foothills has done a very detailed analysis
of that issue and they believe that the President
provided that when the EIS was approved that no further
EIS would be necessary, but there would be site specific
review and the President in ANGTA specifically allowed
for that. So, if new or different environmental concerns
came up, that's how they would be dealt with under that
act.
REPRESENTATIVE DAVIES said:
The flip side of the route neutral question is the fact
that the benefits of an expedited review are not
conferred in a tidewater approach. Is that a fair way to
state that? Can you amplify on that a little bit? And
there seems to be a little bit of ambiguity about what's
meant by the Canadian border in some of the discussions.
It's probably just sloppy drafting, but there are
references to the Alaska to Alberta section and things
like that, which - that might include the Mackenzie River
Valley, for example. Do you have any comment on those
issues?
MR. COUGHLIN responded:
It's my reading of the act and others, particularly YPC
who is of course directly interested in that, that the
definitions exclude a route such as they would propose,
because it explicitly appears to be to carry gas to the
Lower 48 markets. If they were going to a foreign market,
that would not be included within the definitions and,
second, it talks about an over-land pipeline route.
I will tell you frankly, that [Canadian border] was a
little bit unclear to me and I think you might talk to
the producers about what their intent was. But, it looked
to me like when they were focused on the one part about
the authority of what the United States federal
government would do, they broke it into Prudhoe to the
Canadian border and then from the Canadian border to a
final destination market in the Lower 48, but then they
recognize that an EIS would have to be prepared for the
entire route and that's how I understood it, but I can't
say that's exactly what they meant.
9:47 - 9:53 a.m. - BREAK
CHAIRMAN TORGERSON announced that Mr. Ken Konrad, BP; Mr. Joe
Marushack, Phillips; and Mr. Robbie Schilhab, ExxonMobil [of the
Producers' Team] would testify next. He said that the information
they had received from them was basically their overview and
sectional analysis that they had presented in Fairbanks.
MR. JOE MARUSHACK offered to review four or five summary slides and
then they could go through and answer questions. His review was as
follows:
You may need a little background on why we headed down
this path of enabling legislation to start out with. The
project that we're working on right now has some economic
hurdles and economic hurdles are highly influenced by
risk. To the extent that we can reduce risk in this
project, one can accept the hurdle ranks that are less
than you would have to accept if there was a lot of risk
in that. So that's really what we're focusing on with our
enabling legislation here. We're reducing risk and
increasing our ability to develop an economic project.
One of the key risks we have had associated with this
project right now is cost numbers sitting out there. They
have been out there for some period of time. We are
trying to assess those costs' risk by trying to use
technology to reduce the cost to the extent that we can.
And, also, what we're trying to do with cost risk is look
at how can we eliminate timing problems and that gets
into the enabling legislation.
Price volatility - that's a situation of the market that
we're living in. There is really no surprise in what's
happening in the market in terms of last year, this year,
what's going to happen in the future. We are price
takers. We don't make the market; we take the prices that
are out there. Ten dollars last year was a market
phenomena; $2.46 right now is a market phenomena; it's
been up and down and it will continue to be up and down.
So, we've got to have a project that weathers all these
storms and that's what we're focusing on there.
Fiscal risks - a number of things we're addressing there.
One thing we're trying to do is work with the state on
assessing what is the actual fiscal - how can we just
know what the rules are in the State of Alaska and live
with those rules whatever they are. We are trying to
finalize what those things are.
Regulatory risks - [Indisc.] We're spending around $100
million on this project this year. It's an unsanctioned
project [indisc.]. As we go through this process, you
cannot continue to spend this kind of money and not know
what the timing is, what permitting process you're going
to be working under. So, this enabling legislation is
really design to put some parameters and put some
certainty around the regulatory risk.
The big point is that we're here today to discuss and
answer questions on any new legislation for you.
The next slide - what it does - and Patrick Coughlin hit
on a number of these things. It creates a market driven
expedited regulatory process for any viable project
subject to FERC regulations, fair and reasonable terms,
open access, just like many pipelines that are out there.
There's nothing special in that regard. It's subject to
all environmental laws and regulations and in 18 months
an EIS completion.
Now on this, a couple of points to make. We believe it is
extremely important that this project be managed by a
market driven process. Again, what market driven really
means - the only reason the producers came together on
this project in my mind is to try and find the lowest
cost way of getting gas to market. Historically, we don't
own a lot of pipelines. It's not what we choose to do. In
this case, we've come together to assess what the
pipeline costs would be so we can really manage the
tariff costs. What we want is a low cost tariff and a low
cost project that competes with other projects in the
Lower 48.
The FERC regulatory - fair and reasonable terms and
conditions. Obviously, with FERC managing [indisc.], we
believe there are requirements that those things be met.
This is not an attempt to put unreasonable unfair terms
and conditions. In fact, at the end of the day, it's not
certain who will own this pipeline. The only reason we're
working on this right now is to try and make sure that
the cost is as low and the tariff is as low and economic
as possible.
We do believe, however, that a new EIS is a good thing.
We think that will limit the amount of regulatory reviews
and we have no fear that we can do this in an 18 month
period with the enabling legislation. It certainly is a
challenge. The whole project is a challenge. A new EIS is
a good thing; it's not something we think should be of
concern to people.
As Patrick indicated, this proposed legislation creates
an Office of Federal Pipeline Director in the executive
branch. The whole point there is to have a single point
of contact to coordinate and make this project as certain
and as coordinated as possible.
Timing the judicial review is in there and we think
that's a good thing. There will be many challenges. It's
not our intent to limit challenges, but it is an intent
to save. There are challenges and let's get through them
as quickly as possible.
Finally, the last point mitigates regulatory uncertainty
risk provisions relevant to any project. [Indisc.]
Patrick said this would only provide ownership to the
producers and that is not true. Any party in this
legislation can build a pipeline. It is true, however,
that any party is going to have to have shipping
commitments and you're going to have to have shipping
commitments with the producers one way or another.
This is an overview of what we have in here. However,
none of this is locked in stone. We are trying to come up
with a process that works well and works well for all
parties. If there's changes to be made, we're willing to
consider them and implement those things.
[Static]
There is not [indisc.] the north route. We're not going
to pick something the State of Alaska does not want. At
the end of the day, this was never an attempt to find a
way of mandating north. We continue to be route neutral.
We do not know enough information to give you a route at
this point in time on an economical project.
TAPE 01-17, SIDE B
10:10 a.m.
MR. KEN KONRAD, BP Alaska, said he wanted to spend a few moments
talking about what the legislation doesn't do:
The first thing is that this enabling legislation does
not affect existing provisions or rights and obligations
of ANGTA. It doesn't change the companion legislation in
Canada; it does not change the treaty with Canada. If the
project sponsor under ANGTA can somehow make that old
legislation and that old project work on a cost
competitive basis, that's a good thing. That's something
we support. So, nothing in this legislation precludes
that project from going forward - if they can manage all
their issues and come up with a competitive project. We
have encouraged the Foothills groups to do just that.
We are not wed to own a pipeline; we're wed to getting
gas to market as cost effectively as possible, which, I
think, maps very directly in terms of the state's
interests as well.
It does not apply only to producers and it doesn't
actually increase producer control. I think there have
been a number of comments that one of the three criteria
that's set out in the legislation requires shipping
commitments, requires new environmental standards,
requires that it meets fair terms and conditions per FERC
- those things are required for any project. Any project
that goes ahead requires shipping commitments; that is
not unique; that is not special. An ANGTA project would
require shipping commitments to gain financing. A
producer project would require that; a third-party
project would require that. That is not unique or new
and, indeed, anyone can be a shipper. The State of Alaska
could be a shipper; a gas marketing company could be a
shipper. Again, it is available to any project. It's
probably worth noting the word 'producer' never actually
shows up in the legislation. So, it is actually quite
balanced.
It doesn't seek relief from any current environmental
requirements. It says the project must meet all existing
modern day environmental requirements. What it does
limit, in terms of trying to go beyond existing
environmental requirements, in terms of judicial review,
does not predetermine a route or project. It does not
predetermine a project sponsor. That has caused some
clear concerns in Alaska, but as Joe said, and as we've
said repeatedly over the past quite a while, at the end
of the day the producers are not going to do a project
that Alaska does not want. It really should not be an
issue. And to the extent we want to enshrine that in some
way, that can be done, but I don't think anyone has ever
thought that a project would go ahead that Alaska doesn't
want. Nor do we think that a project will go ahead that
Canada doesn't want; nor do we think that a project will
go ahead that people in Washington D.C. don't want. We
need to build a pipeline all 3,500 miles, we need to get
gas all the way to market. If there's a 100-mile gap or a
1,000-mile gap somewhere along the way, it's simply not
going to happen and that's the reality.
There's been some questions raised about the state's
ability to market gas and certainly this enabling
legislation does not limit the state's ability to market
its royalty gas. The old provisions that were part of the
old ANGTA legislation were needed back then because we
were living in a different regulatory environment -
bundled services, a regulated environment. Special
provisions needed to be made to carve that out. That's
not necessary today in today's world. Under this
legislation certainly, Alaska would be agreed to either
to take its gas in kind or take its gas in value and
we've certainly talked to this committee about that
before.
10:05:54 a.m.
MR. KONRAD continued his testimony:
Another question they have heard is why not just revise
ANGTA that was there 25 years ago? And isn't there
something we could do to dust off this 25-year old
st
project to make it right for today's 21-Century
environment? As we said earlier, this legislation does
not preclude a project proceeding under ANGTA if they can
resolve all of their issues. Back then it was focused on
the then competing projects. The legislation was put in
place around the regulatory environment that was there at
that time and what was going on at that time. But it
doesn't actually provide for a competitive framework.
A competitive framework encourages multiple projects to
come forward and the most cost effective project to
proceed. And, again, that's certainly in the best
interests of Alaska and certainly in the best interests
of producers. It's probably not in the best interests of
folks that are seeking to limit the competition. It
doesn't really have a process in it for new lower cost
applications either through other companies, be it
Williams, Duke, Enron, producers, whatever. It didn't
have a process for that and it also had quite specific
technical specifications attached to it. Again, we would
expect that if a project did proceed under ANGTA, that
they would update it to modern day technology, but what's
in the actual legislation is quite specific in terms of
pipeline design and pressure design. I would expect that
could be changed, but the way it sits now it is quite
specific. I know the ANGTA project sponsors are certainly
looking at coming up with a more modern design that would
be much more cost effective than the old design.
Another thing we touched on before is that the market
structure is fundamentally different than it was 25 years
ago. Back then we were in regulated markets and the cost
of a pipeline was really on the back of consumers. Prices
were regulated. People were told where gas would go and
under what pricing and a large portion of the ANGTA
legislation is actually built around addressing those
issues.
Current markets are deregulated and the risks in terms of
where gas goes, as Joe said, we're price takers not price
makers. Gas will flow freely through the North American
grid and it's very much deregulated and the risk of the
project has shifted from consumers to investors - a
fundamentally different framework. That is kind of a high
level snapshot of where we are. What we really wanted to
do today was just sit down and talk to you, answer any
and all questions possible and see what suggestions might
be around to improve it...We do want some sort of
enabling legislation that is competitive, sets a
framework for investors to move forward in a certain
fashion, but it's not cast in stone, but we certainly
need to make sure it addresses the needs just not of
investors, but also of stakeholders.
CHAIRMAN TORGERSON said he wanted to focus on his thoughts on the
competitive framework and that he didn't think it allowed a route
different from the Alcan. He asked if that's why he is saying ANGTA
isn't competitive.
MR. KONRAD answered, "No, it doesn't have provisions for a pipeline
sponsored by producers…whoever comes up with the best idea, the
most innovation that we all know is going to be necessary to get
the economics where they need to be."
CHAIRMAN TORGERSON asked if that decision wasn't made with the then
competing projects. Projects were brought forward and a party was
selected. "Now you're saying that the party was selected and that
route was selected and their engineering was selected, but that's
not competitive."
MR. KONRAD responded, "If that project was competitive, it would
have been done a while ago, when we hope that it can be turned into
a competitive project, but we would also hope that other folks with
better ideas would have the opportunity to create…"
CHAIRMAN TORGERSON said he had heard his debate on that, but it
doesn't change the federal law. "What you're implying here is that
because they were chosen long ago, it's not competitive anymore to
other things. The law is still there. Right?"
MR. KONRAD responded that the law is still there. "We're not
proposing to change the law, we're not proposing that a project
couldn't proceed under that. What we are proposing is that the best
project proceed."
CHAIRMAN TORGERSON responded that the decision was made, although
it was 27 years ago, that a group and a selection was made on how
to proceed for getting that gas out and it was never repealed. And
now your position is: Well, it's old, so we ought to be able to
file under the same old law that you made your choice on 27 years
ago and start all over again.
MR. KONRAD replied:
If people want to vote for the status quo and want to say
the status quo is fine and whatever has happened over the
past 25 years is fine, that's a decision policy makers
can make. I don't think that's a decision that policy
makers want to make, but that's their decision. I don't
know if a vote for status quo actually moves the ball
forward. Maybe it does. That's certainly not what we're
thinking.
CHAIRMAN TORGERSON responded, "We'll get into that this afternoon,
but I don't know of anybody who will recommend the status quo, but
the status quo changes and has modernized in the 21st Century."
MR. MARUSHACK explained:
The real point of enabling legislation to me is that we
have an opportunity to have different projects come in
and have the lowest cost project. This is not code for
north. People think it is, but it's not. Assume it's
south, if you will. What we're trying to do is have a way
of making sure that the lowest cost project and lowest
tariff succeeds. That is good for producers and it's good
for the state, also. So, we're a little confused….
REPRESENTATIVE OGAN said he wanted to ask him about a comment he
heard by Curtis Thayer that sent shock waves through a lot of them
saying, "If there's any route specific legislation,… that they
would just pull the plug on the state and go home and leave our gas
stranded for I don't know how many more decades."
MR. KONRAD responded:
Let me say as clearly as we can that we're not going to
do a project Alaska doesn't want; we're not going to do a
project Canada doesn't want; we're not going to do a
project that any political body doesn't want, because it
won't happen. I think what we're saying is that it's
actually in the best interests of we think everyone -
ourselves and the state - to do the work, look at the
attributes and decide. Alaska has already passed
legislation and I think we're still doing work. If Alaska
ultimately decides that it doesn't support a project,
then it's not going to go ahead. I think that's fairly
straight-forward. We don't think right now is the time to
take away options, when no one actually has all the
answers. We don't have all the answers and I know you're
relying on us to provide information to make assessments
and I think that's all we're saying. I know that's all
we're saying…
REPRESENTATIVE GREEN said they had gone over this before, but he
still has difficulty understanding what they say:
Producers are not going to proceed with a project Alaska
doesn't want, and Alaska is telling you we don't want the
over-the-top route, because it doesn't do a litany of
things for the people of the state and yet you are
proceeding.
MR. KONRAD responded that, "We're not proceeding with any route
right now. What we're doing is a study…"
He said they were trying to share results with Alaska as they
became available. The state has said that revenues, jobs,
environment and gas access are important and the producers are
showing them how that can be accommodated. He said they had not
selected a northern route or identified a route or an economic
project to date.
REPRESENTATIVE GREEN responded:
When you go through the litany of procedure, the process
that you go through, the first stage is the study. That's
proceeding in my vernacular. So, you are proceeding.
You're not selecting a route that the State of Alaska
doesn't want, but you are proceeding.
MR. KONRAD responded, "We're doing what we told you we would do in
January, we're doing what we told you we would do in March…and
we're continuing with that work program and we're still on target
with that work program."
REPRESENTATIVE GREEN said:
Let's assume that you're through with it as all
indications seem to be that you find for your
stockholders that the best route would be through other
fields that you have an interest in and collect gas from
those other fields and then you come down through the
Mackenzie route. That is certainly the best from your
standpoint. When you say you want to establish the lowest
cost tariff, that is again the bottom line for the
producers, but it isn't necessarily the best route to
take. In your analysis, are you going to consider those
issues that are best for the state including jobs and use
of gas in state and those kinds of things or is it going
to be the process you're going through right now that
comes out with dollars?
MR. MARUSHACK replied:
The process we're under right now is we're looking at
both the north and the south. There are tons of
challenges on both of those routes. Phillips, I feel is
pretty clean on this issue, because we don't have any
interest in Canada. We still need to look at both routes
and see what happens there in terms of what's getting the
do-ability and getting the cost. Now, we are fully, fully
understanding of Alaska that jobs are extremely
important, gas is extremely important, the wellhead price
is extremely important. All that will work in there and
at the end of the day, there's a conclusion and maybe we
have perpetuated that through the information, there is a
conclusion that the north is cheaper. We don't know that
yet. That's why we have to continue it. At the end of the
day, we might find out that the south is actually
cheaper, but it's still not economic and then we'll be
back sharing that information with you. We may find the
north is cheaper and there's ways of getting all these
other things. If that's not acceptable to the State of
Alaska, we won't be going forward.
Someone mentioned earlier today the idea of litigation.
The last thing on earth we want to do is spend a lot of
time and money in litigation. It could happen, but we
wouldn't do that. We would rather sit back and say we
couldn't make a project happen and let the other folks
bring their projects and let's see if anybody else can
make it happen.
REPRESENTATIVE GREEN said they are looking at do-ability and
affordability and the do-ability is best down the Alcan, because
that's already permitted. Affordability is the question that they
are going through and he asked:
Would it be in your analysis that you're making and
you've referred to several times, that you come up with
the fact that it's not economic. Do you have any
objection to selling gas on the Slope to some other
conduit whose plans could afford it?
MR. MARUSHACK replied, "No objection."
MR. KONRAD said they had encouraged all the pipeline companies to
come up with a better answer than they can.
REPRESENTATIVE DAVIES said that a number of them are wondering what
the Curtis Thayer comments were all about. "We feel there is a lot
of resistance to our stating what is in the best interests of our
citizens and those comments, you need to clarify them directly or
you need to retract them."
MR. KONRAD said that was a miscommunication in their opinion
between him and the reporter. They apologize for that and said that
what the Joint Team says carries more weight than what anyone else
working for them may or may not have said.
MR. MARUSHACK asked which comments in particular he was concerned
with.
REPRESENTATIVE DAVIES said it was the specific comment about
shutting down the study.
MR. MARUSHACK responded:
On that regard, the process we are on is trying to find
an economic project. We know we need enabling legislation
in order to put timing around that. What should have been
said and I think has been said, is at the end of the day,
if the joint producer group doesn't have any certainty
around these parameters, we cannot continue to spend
money on a project that we can't see any endpoint. So,
it's got to be economic; we've got to have regulatory
certainty; we have to be making progress on working with
the state so we know what the rules are. And we're trying
to do all those things. It's certainly not a threat; it's
a statement of fact. If we don't have all those things,
we can't spend $100 million and keep doing that and not
know what the endpoint is. I don't want to mislead
anybody. We need those things; we are working hard to get
those things. We're asking you to support us in helping
get those things.
REPRESENTATIVE DAVIES said the legislation specifically requires
FERC to issue a certificate if three items are met and he asked
what is taken off the table by that requirement.
Is the finding of public necessity and convenience taken
off the table - question one? Question two is, are
antitrust concerns taken off the table? In your view,
does FERC no longer have a comment on whether or not the
portfolio would have antitrust violations? And, thirdly,
especially with the couple of scope questions, what
environmental concerns are you taking off the table?
MR. MARUSHACK answered:
Regarding the first statement - the finding of public
convenience. We think there is a need for Alaskan gas to
come to the Lower 48. So, what that first statement was
intended to do is say that has already been decided.
There is a need for Alaskan gas to come to the Lower 48.
So, yes that is off the table there, but what it replaced
was you have to acknowledge that you have to have
commitments to make a pipeline happen. So, if someone can
take those commitments forward, you come to the producers
and you have an agreement that you'll make 4 BCF of gas
appear for 20 years, then that suffices that particular
issue. So, it was an attempt to say why you need to go
there on that one. You don't need to go there, but you do
need to have shipping agreements, just as any big
pipeline is going to have to have.
MR. KONRAD said if that provision was taken out, he didn't think
anyone would object, because it's just a fact of life. "All
pipelines need shipping commitments."
MR. MARUSCHACK continued:
With the idea that that's a stranglehold on producers
owning the pipeline, that point we completely missed,
because that was never the intent, whatsoever. In terms
of your statements on antitrust, no. All antitrust
issues, to the extent that there are antitrust issues,
that is not taken off the table.
The environment - we think we've proposed something that
is significantly more consistent with current 2001
environmental requirements. We're going to do a new EIS
for this process and it's going to be a full blown, fully
evaluated EIS, but we do believe that in order for that
process not to take forever, in order to get the
certificate, we did put in an 18 month commitment. What
we're really saying there is that's just a priority; that
just gets some certainty and that gets around reducing
risk.
MR. KONRAD said it would be built to the highest environmental
standards. He thought the antitrust issue was a Justice Department
issue, not a FERC issue.
REPRESENTATIVE FATE asked them to explain how the proposed enabling
legislation would not impair the state's marketing options.
10:27 a.m.
MR. KONRAD replied:
Back in that time frame in a regulated market, there were
provisions for bundled services and where gas needed to
go. Back then they recognized that Alaska might have
within state needs and that gas should be exempt from
those regulated bundling provisions. In today's
environment, those things don't exist. We're not in a
regulated market; we're in unbundled services. So,
there's not a need for it. The state would be free - any
shipper, party, producer, state would be free to move and
market their gas any way they wanted to. In the 21st
Century, that's the way it is. It's not an issue today;
it was an issue 30 years ago.
REPRESENTATIVE FATE asked if they are speaking primarily of
marketing gas rather than instate use of gas. "What I'm getting at
is that it says it's going to impair marketing and that's true, but
will it impair instate use?"
Both gentlemen indicated it wouldn't.
MR. KONRAD said that he thought the provisions back then were
around state royalty gas and:
Today the state would be free to do whatever it wants to
do and anyone could provide gas for instate gas. Any
pipeline that's built, in the case of a southern route,
would have onramps and offramps and gas coming into it
and off of it.
REPRESENTATIVE FATE said that would become a function included in
the over-the-top route. There wouldn't be instate gas unless there
was some kind of lateral coming down and they would need
infrastructure and that's not in the discussion.
MR. MARUSHACK said their proposal does not preclude taking gas and
using it instate. "It's not intended to do that."
MR. KONRAD agreed.
CHAIRMAN TORGERSON asked if they would object to clarifying that in
their legislation.
Both men indicated they wouldn't object.
CHAIRMAN TORGERSON said there were a number of provisions the
committee thought were left out of their proposal.
REPRESENTATIVE OGAN asked what kind of interaction they had with
the other pipeline group. Were they also looking at 4 BCF/D line
that's economically feasible.
MR. MARUSHACK replied that Steve Alleman reports to him from within
Phillips and the LNG work that he's referring to is happening under
his watch, too. Four BCF/D is 28 MTPA, a huge number. They are not
looking to try to place that in a market.
REPRESENTATIVE OGAN said there was a lot of interest in building
LNG on the West Coast and they have receiving facilities. His whole
district's number one question to him is why are they even looking
at going down through Canada. There is a lot of support for a
tidewater port in the state. "I think we're at a watershed moment
with Alaska and the producers. I would like to caution us all to
handle this very delicately, because people are emotional about
marketing this gas and different routes and these kinds of things.
Mr. Thayer's comments weren't helpful."
MR. MARUSHACK responded:
It just doesn't make sense. The whole idea of regulatory
certainty is to limit, to know how much time it takes so
you can buy your materials and get them in the ground. To
the extent that we end up doing something you don't want
and we end up in all sorts of court actions, we've
destroyed that. It doesn't make economic sense.
REPRESENTATIVE OGAN said the bigger picture now is that we have a
national security issue, not only for a gas pipeline, but for the
possibility of opening ANWR. "…I'm going to hold you to it that at
the end of the day, if it's something we can't live with, that you
won't do that…"
REPRESENTATIVE DAVIES asked them to comment on language under (B)
rates and charges, "can be established in accordance with…" in the
proposed legislation on page 8.
MR. MARUSHACK answered that perhaps it should have said, "…are
established". The point is it has to be reviewed and acceptable to
FERC. "This was drafted by lawyers and we're just engineers. We
know what the intent is, though."
10:35 a.m.
REPRESENTATIVE PORTER asked, "If this proposed legislation were to
pass and the producers had a proposal for a northern route, and it
was accepted, could other parties use the legislation for another
route? One proposal is specific and everything else is precluded."
MR. MARUSHACK answered that it could be used for any route, north
or south.
MR. MARUSHACK added that Foothills could use it and anyone else
could use it. They talked to the owners of Foothills last week and
continue to talk to them. "It's a difference of we really think we
need this in order to have the most competitive project for us or
anybody else to do.
MR. KONRAD said, "They may decide this legislation is easier to
work in and, again, that would be their choice.
CHAIRMAN TORGERSON said he wanted to revisit the antitrust issue.
"ANGTA is not authorizing an owner of the project? Correct?"
MR. MARUSHACK answered that was correct.
CHAIRMAN TORGERSON said in '82 there was an amendment that said you
could own "some" - not all, but "some."
They acknowledge that was true.
CHAIRMAN TORGERSON said:
Now you're talking about owning all. And your legislation
doesn't mention the fact that you have a test for
antitrust and I want to make sure of your comments, Joe,
that anybody has to go through antitrust and I believe it
affects any company, takeovers or anything when they try
to make a project. So, you would probably have to stand
some sort of antitrust test, whether or not this
legislation was there. So, the question again is, does
your legislation make you go through the same provisions
and actually make you have a separate ruling from FERC
that this does not violate antitrust?"
MR. MARUSHACK said he could only say that the intent was not to
circumvent any antitrust issues.
CHAIRMAN TORGERSON asked how to get from "some" in the '82
amendment to owning "all" today.
MR. MARUSHACK replied: "Senator, the only reason we have come
together is to try to make the most economic project we possibly
could…."
He said there are a lot of different interests and it's not easy,
but they are trying. The major resource owners at the end of the
day are going to make the shipping commitments and a lot of the
risk is going to be on them. "At the end of the day, if someone can
do a better project and we're part of it or we're not part of it,
we're willing to talk to them about it."
CHAIRMAN TORGERSON said:
I don't think that answers my question. How do you get
from "some" to "all" ownership in the pipeline? Does this
legislation change the '82 intent provisions saying that
producers can own some of the project or does the '82
amendment to ANGTA mean you can own all of it?
MR. MARUSHACK answered: "What this language does is you can own
some or none. It works for anybody; it doesn't just work for us."
CHAIRMAN TORGERSON asked if the 1982 amendment to ANGTA allows them
to own all of the project or just some?
MR. KONRAD replied that he believed they were allowed some
ownership under the 1982 amendment, but he could check on it and
get back to him.
CHAIRMAN TORGERSON said, "So, that would still be the law today."
MR. KONRAD replied, "For a project that would proceed under ANGTA,
that would still be the case."
CHAIRMAN TORGERSON asked, "But you don't know what 'some' means,
how much of that project."
MR. KONRAD said they would check on it and get back to him.
CHAIRMAN TORGERSON asked if they could do that before 2:00.
They said they would give it a try.
CHAIRMAN TORGERSON said they hadn't mentioned anything about taxes.
He asked if they were seeking tax exemptions, accelerated
depreciation, investment tax credits or anything in federal
legislation?
MR. KONRAD replied that this was regulatory legislation.
CHAIRMAN TORGERSON asked: "Would you like that in federal
legislation that this committee could consider this afternoon -
whether or not you are asking Congress for any tax exemptions?"
MR. KONRAD replied, "The Joint Team has said it supports
accelerated depreciation for gas pipelines, both in the U.S. and
Canada."
CHAIRMAN TORGERSON asked if they were satisfied with the
accelerated depreciation provisions that were in the House version.
MR. MARUSHACK said they would have to check, but he thought it was
seven years, which is what they have been talking about. That makes
it consistent with gas gathering lines.
CHAIRMAN TORGERSON said he thought it was seven years on one and 10
years on another one.
Both men said they want seven years.
CHAIRMAN TORGERSON asked about other tax issues.
MR. MARUSHACK replied, "The joint team's position is that they are
not jointly looking for tax incentives, but you know that different
companies have different views."
CHAIRMAN TORGERSON responded:
I understand, but I also clarified that. In this federal
legislation that I'm talking about - and I'm not talking
about what some companies are doing - in the broader
sense, investment tax credits or other things, that may
have been talked about. Are you seeking any of that in
this legislation? Yes or no?
MR. KONRAD replied that they said those issues were not in this
bill and they have said that to the folks on the hill.
CHAIRMAN TORGERSON said:
We are going to recommend to Congress to adopt certain
provisions in federal law…One of our recommendations
could be no tax incentives, period, no accelerated
depreciation or anything - or it could be accelerated
depreciation, investment tax credits or other things.
It's a pretty simple question. Do you want any of that? I
heard yes on accelerated depreciation. So, I'm asking you
if you can give us what you want by 2:00 this afternoon
so we can talk about including that in our package of
recommendations….
MR. KONRAD said they support seven-year depreciation for natural
gas pipelines.
CHAIRMAN TORGERSON asked what they thought about a provision using
United States Steel.
MR. KONRAD replied, "We would love to use U.S. Steel [Company] if
the mills have the capability to supply it competitively…As always,
mandates tend to not create competitive pricing, but we'll be
working very closely with U.S., Canadian...The scale of this
project is such that it's going to need steel from a lot of places.
So, we'll actively be encouraging everyone to come up with the best
product they can.
MR. MARUSHACK clarified that they do not support mandates. They
support the free market system and they want to use U.S. Steel to
the extent they can.
CHAIRMAN TORGERSON said his last question was about project labor
agreements.
MR. MARUSHACK answered that they were going to use unions on this
project, given the labor situation. They think that is a good
thing, but they do not want mandates on that, because they would
like to be able to negotiate with all parties in order to have
costs as low as possible.
REPRESENTATIVE GREEN asked if it was imperative that this federal
legislation be passed in order for them to continue.
MR. MARUSHACK answered, "Yes sir,…. We're all for improvement, but
we think there needs to be a regulatory process."
REPRESENTATIVE GREEN asked if they would continue under existing
law if their proposed legislation was defeated.
MR. KONRAD said that would raise the risks considerably.
MR. MARUSHACK replied that the Joint Team would not continue. He
didn't know what individual companies would do at that point.
10:46:04 a.m.
MR. JOHN ELLWOOD, Vice President, Foothills Pipe Lines, Ltd.,
introduced Mr. Curt Moffatt from the firm of VanNess Feldman who
would respond to questions about the legislation and he would
respond to business matters and corporate policy. Mr. Ellwood said:
We feel very strongly at Foothills that no federal
legislation is required in order to expedite, modernize,
construct and operate the Alaska Natural Gas
Transportation System. We believe that ANGTA is more than
sufficient and is superior to any alternative pieces of
legislation of which we are aware.
We would also point out that the Canadian regulatory
regime is in place and will expedite the construction of
the necessary Canadian facilities. This Canadian
expedition is tied directly to ANGTA and would not be
available to a project that was proceeding under other
U.S. legislation.
We would request that, if parties believe that federal
legislation is necessary, that that legislation should be
drafted so that it does no harm to the ANGTA regime. We
believe that the legislation that the producer group…
TAPE 01-18, SIDE A
MR. ELLWOOD continued:
…put forward would violate that principle of do no harm
to ANGTA. We believe it will delay the commercial
negotiations that are under way now by confusing the
regulatory and commercial situation and raising new, and
perhaps unforeseen, legal questions, which will take time
to resolve.
The Foothills and the Alaska partnership are committed to
work within the ANGTA framework and to construct a modern
ANGTS and to construct it to the full modern
environmental standards. We believe that can be
accomplished under the current law and lastly, I would
just say again that Foothills is ready to work with all
stakeholders to consider development of constructive
legislation which confirms and clarifies ANGTA, its
flexibility, and we believe that that would assist in the
expedited construction of the Alaska Highway project.
That's my opening remarks, Mr. Chairman.
MR. MOFFATT said he didn't have anything to add, but would answer
questions.
CHAIRMAN TORGERSON asked if he wanted to take a different position
on any of the testimony from the producers.
MR. ELLWOOD said he would need a few minutes to think that one
over.
CHAIRMAN TORGERSON asked if he thought ANGTA gave them an absolute
franchise or an exclusive right to be the only operator in
construction and operation on the line.
MR. ELLWOOD answered:
We believe that it was the intent of Congress and
likewise in Canada, the intent of our parliament here,
that we would be the operator of the first project to
move Alaska gas. There is no perpetual franchise granted
by either ANGTA or the Northern Pipeline Act here in
Canada.
CHAIRMAN TORGERSON asked how close they are to making a deal with
their withdrawn partners and how close are they to making a deal
with the producers to exercise their franchise right.
MR. ELLWOOD responded:
I think as you and other members of the committee have
probably heard, we are in the process of discussing with
all the withdrawn partners whether they would be
interested in reenlisting in the project. Those
discussions are progressing very well and we are
expecting in the very near future to have this issue of
the withdrawn partners completely off the table.
CHAIRMAN TORGERSON asked what their position would be on his
proposed amendment for federal legislation to do away with their
withdrawn partner liability taking $4 billion off the table.
MR. ELLWOOD said he would have to get advice from his legal team as
to whether or not he could legislate these large commercial
matters. "This is really an arrangement between ourselves and our
withdrawn partners. We are about to change that and we're about to
change it in a positive and constructive way."
CHAIRMAN TORGERSON said:
We're dealing with federal legislation today that we're
going to testify and have a position on your position by
October 2. We don't have time to wait for you to do this
stuff and continue on with this stuff and us not take a
position on whether or not you have a legitimate $4
billion claim on your route, which if you do, I can tell
you what's not going to happen. We're not going to start
the race off with $4 billion in the hole. I don't know
anybody who would do that.
This is a major stumbling block for finding support for
your position. Until this is taken care of or legislated
out, I'm going to have a hard time supporting your
position.
MR. ELLWOOD replied that they understand that, but they are moving
expeditiously to clarify that.
I should make it clear at this point that there is no $4
billion number that people are seeking to recover from
the producers or the state or anyone else. No one is
asking for or seeking an additional $4 billion here. That
won't happen; it can't happen; it would just never be
commercially viable. I understand that people are
concerned about that number. I just ask for your patience
for a few more days while we sort this matter out amongst
ourselves and bring forward a new position, but at the
same time, I think it's important that everyone
understands that even if we were to proceed without any
other matter right now, there would be no $4 billion
charge to anybody.
CHAIRMAN TORGERSON responded that they aren't trying to legislate
that this go away, but we can sure recommend that to Congress and
they can figure out whether or not it works. We could have our
support contingent upon that going away by a certain period of
time, which is what I think I tend more to favor than a carte
blanche you're in the right position, that we're going to wait for
you some day to get this figured out. It's a major stumbling block
now.
MR. MOFFATT interrupted to say:
First of all with respect to any contingent liability to
any of the withdrawn partners, it is highly contingent
under the partnership agreement first and foremost none
of the very sophisticated companies who hold the status
of withdrawn partners and those include Enron, El Paso,
Duke, Williams, PGT, an affiliate of PG&E, and Semper,
the parent of Southern California Gas Company. They are
all very sophisticated participants in the energy markets
today. They understand fully that they have no
opportunity whatsoever to recover any dollars under the
partnership agreement if the project is not built under
ANGTA and pursuant to that partnership agreement. You'll
also understand that that partnership agreement provision
was written in a way that it should never inhibit the
completion and initial operation of the ANGTS and is
contingent upon that completion and operation. The border
partners, which is comprised solely of the current active
partners, which are TransCanada and Foothills and any
other partners that they invite back in to the
partnership, which could be any of the producers or other
interests in Alaska, will have the right to vote on when
and if any of the withdrawn partners ever see a penny
under that provision. It is highly, highly contingent.
I think the other point Mr. Ellwood was making is that
even if there is private contractual obligation that at
some point down the road is due and we determine we can
make such payment under the partnership agreement, it is
not going to be recovered in the rates that will be
charged either to the state for their royalty gas or to
the producers on the Slope or any of your explorers who
are out there bringing gas on the line 10 or 15 years
from now. That is a private contractual matter. The rates
for transportation on any system, whether it's the ANGTS
or a greenfield pipeline developed by the producers or
any other group of people, those transportation rates are
going to be determined by the market. The market is very
competitive today and this project that did go through a
very detailed and long competitive process at the FERC
and FTC, all it does is authorize a group to hold the
certificate to build the project and selected a route and
the terms and conditions can be modernized and they will
reflect current market conditions. So, all of the issues
that have been raised about the need to modernize, the
need to be efficient, the need to be able to develop a
project that's economic - absolutely. That's what we've
been facing for 25 years - waiting for demand and the
price to get to where we can, through technology and
lowering costs, get this project finally built and bring
your Alaskan gas to the North American market at
competitive prices.
CHAIRMAN TORGERSON asked if he said the withdrawn partner amount
would not be built into a tariff. Therefore, the $4 billion is not
an issue?
MR. MOFFATT answered:
Yes, sir. In our view, it is not going to be an issue in
the tariff. The market forces, whether it's an Alberta
Hub or Fairbanks Hub, [indisc.] or Chicago. The pricing
rules are very clear. This gas has to be laid into that
market at competitive prices. The capital costs and the
operating and maintenance costs that are required to
build this line that is still not in the ground, as we
all know, are going to be enough to take up what the
transportation costs can be to lay that gas into the
market.
10:58:47 a.m.
Our shareholders have never approached this with a view
that any of those dollars are going to be recovered. We
just believe they won't exist, because our partners are
good, strong, economic, savvy companies and they know
they cannot exist.
MR. ELLWOOD said:
We're not here in this project, nor are our shareholders
in this project to recover historic costs. We are here
for the investment opportunity going forward. We believe
this will unfold under a negotiated toll arrangement
whereby we will negotiate with those parties wishing to
ship gas to determine what the charges would be. Of
course, it would be based in some way on the capital cost
of building this project.
All projects have development costs. If the new party
were to come forward and try now to develop a new
project, they will have development costs. Those costs
normally get recovered in some fashion by the developing
company. We believe going forward here that we will, in
that negotiation, be seeking to recover some good will,
because we believe we bring value to this process. We
already have permits in hand and shippers working with us
will not have to go through the expense of acquiring
those. We have rights of way; we have current engineering
data and other information that would be useful and would
be costly for anybody going forward and we will seek to
negotiate some fair value for those assets. And to that
extent, these costs might be incurred in the [indisc.],
but there is nobody seeking to recover all prior expenses
with interest.
MR. MOFFATT added:
Also, to the extent those costs are being reflected in a
toll, they will only be reflected as people attribute
value to those that are avoided costs of some other
developer who's going to incur those costs currently to
start over. So, we just don't believe that a $4 billion
issue is ever going to hit the toll.
MR. ELLWOOD said, "We would never ask for it and it would never be
permitted by FERC in any toll that they might approve."
MR. MOFFATT underscored their basic point which is:
We find the proposed legislation by the producers
absolutely and totally unnecessary. It calls into
jeopardy the viability of the ANGTA regime, including the
president's decision, the congressional actions, the
agreement on principle, the statutory framework of the
Northern Pipeline Act in Canada - all of that would be
called into question. There is just no question in our
mind that passage of this legislation adds absolutely
nothing to the debate. If anything, it adds confusion and
delay. We're committed to building a highway route and
getting on with FERC and Congress determined after a
healthy competitive analysis of fuel alternatives are
reflected in today's debate, one which would be to go
over and connect with Mackenzie, albeit on shore as
opposed to off shore, the other taking it on a LNG basis
to the west coast and the third being the highway route.
Those are the same three primary alternatives being
considered today. Nothing has changed. The national
debate at that time, with the approval of the president
and the Congress, chose the highway route and we still
think that's the right decision and we will also be able
to, as the President said in 1977, add facilities off the
highway route when and as necessary to serve other parts
of the State of Alaska including Southcentral and we
believe, as you know, by our support and involvement in
the ANS [Arctic North Slope] study group that if
economics permit and if the gas supply permits and the
markets develop, this can be the backbone of a Y route to
support an LNG project, as well. We've been saying that
for years and we've invested in the ANS study group to
look at those efficiencies.
11:03 a.m.
REPRESENTATIVE DAVIES asked what the status was of their
discussions and when can they expect a decision that they are going
to go forward with a request to the producers to buy their gas.
MR. ELLWOOD responded:
We wouldn't see ourselves buying the gas of the North
Slope producers, particularly. We are a transportation
company. We would see that the North Slope producers
might contract with us to transport the gas. So, they
would sell it, if you wish, in the market place. We would
also see that other energy companies, some of whom may
become our partners in this, perhaps would buy gas from
the North Slope producers on the North Slope or as a
stake on the North Slope and would then contract with us
to transport it. And, again, they would sell it in the
market. It is not a role that we seek for ourselves as a
pipeline company. There are other shareholder companies
and other North American marketing companies who do that
commodity transaction.
CHAIRMAN TORGERSON thanked them for their testimony and announced
that Mr. Mark Hanley from Anadarko would testify next.
MR. MARK HANLEY, Anadarko Petroleum, apologized that a number of
people who planned to be with him from Alberta Energy and Anadarko
were not present today. He said:
You asked how this legislation affects us. And to be
honest with you, specifically, it doesn't. It does create
the expedited process. You've been through the testimony
of where it supercedes different things, but for us as
explorers, we have a large acreage position in Alaska,
largely in the Foothills. We're in partnership with
Alberta Energy, as well as BP and it is gas prone. We are
actually looking for gas. We've done seismic last winter
and this winter potentially we're not going to drill this
year, but the following year for gas. The lease sale that
happened earlier this year in the Foothills, I think it
was the most acreage ever leased at one lease sale for
the state. There were a number of companies participating
from Burlington Resources, PetroCanada, UCAL, Chevron,
Phillips, ourselves without partnership. So, there is a
lot of interest in this gas.
As explorers who do not have identified reserves, I guess
I would say our interest is getting fair access to a
pipeline at a reasonable price. The issues that we raised
in our paper go through those. And where we see
potential, not that it will happen that way, but
potential for problems, we have shared this information
with the producers group and we have shared it with a
number of other companies, some of the pipeline
companies. So, this is not something that they don't
know.
MR. HANLEY said in the proposed legislation the definition of the
availability of Alaska natural gas is gas that comes from that area
generally known as the North Slope of Alaska. They did not think
that was a concern from their discussions with the producers, but
their area is generally known as the Foothills and areas around
Fairbanks are not generally known as North Slope. "So, if people
did find gas, that piece of legislation seems like it might exclude
that. That was not the intent, we were told…."
He said that other areas of the legislation were more process
oriented. FERC has testified that they don't have the authority to
force expansion of a pipeline and their legal research shows that
to be true. So, a company that finds gas after the pipeline is
built, comes forward willing to pay the cost of expansion, if the
producers or someone else come to a pipeline with a bunch of gas to
expand it that might even lower the tariff. Normally that would be
a good situation, but if they are competing with the producers, for
instance, for exploration rights, they may not choose to allow
Anadarko into the pipeline. They would use that leverage as a
negotiation tool.
The producers have suggested that they may have an open season as
early as January of next year. Typically, FERC likes to have an
open season to demonstrate that there's the ability to have gas and
people can show there is a market out there, but the process is
really unregulated by them when the application comes in for the
tariffs - to show and demonstrate that there is that ability to
produce that gas. But at that point, for companies like Anadarko,
they might be interested in bidding at the open season, even if
they don't have identified gas reserves.
We would be on the hook at that point for whatever the
charges are to transport that gas whether we had them at
that time or not. That's a huge risk and whether we would
take that or not, I don't know. But, we would need to
know the terms and conditions during that open season so
we could make a fair bid and that is not a disclosed
process.
Typically, what will happen is after the open season,
normally what would happen as Mr. Ellwood said, a
pipeline company who is like the trucking company - they
don't actually own the things they are shipping. They
will charge you for the transportation. They would go out
and see a need and develop this and ask for producers to
submit nominations for capacity on a line they want to
build. In this case, because it could be unique where
both the producers are partly the owners, it creates a
little different situation. I guess we want to know the
terms up front before the open season, have an adequate
time to look at those so we can decide whether or not we
want to bid.
MR. HANLEY said that some issues within FERC get fairly technical,
like the ability of producers to withhold capacity at an open
season. It seemed that a large part could be withheld so it would
not be available for other companies to bid on. "It has happened in
other cases. FERC does allow that."
He said they have concerns about setting BTU minimums or maximums
for the gas quality that goes into a pipeline as part of the
application process. Gas in the Foothills might not have as many
liquids in it [BTU content].
The company that is going to build the pipeline is going
to submit an application to FERC with these tariffs with
these conditions in it and we may not know what those are
ahead of time and we think there are some issues the
state should look at and determine whether or not they
want to support mandating or suggesting that FERC go in a
particular direction. A lot of the cases, FERC has
precedence and policies, but we have found they are just
that - policies and you're going to find that this is a
unique pipeline. It definitely is likely the only
pipeline going to be built out of Alaska. It is, unlike
the Lower 48 states, whether your cost of going in a
different route or building your own pipeline is
significant, but the market forces down there prevent
someone from charging too much of a rate, because you can
go somewhere else. You have other options. That is not
going to be the case here.
One of the issues you heard about earlier, accelerated
depreciation. We don't particularly have a problem, but
one of the issues we would raise is - is it structured in
such a way that it increases the tariff? If it does,
obviously the wellhead value for everyone, including the
producers and the state, will be higher and a higher
tariff is not good for us.
If someone can recover that accelerated depreciation
through a different mechanism, through ownership of the
pipeline and not have it affect their individual assets,
it may not be a problem for them to have a higher tariff
rate if they are recovering it somewhere else, but
companies that do not own the pipeline, the state for
example, may be disadvantaged by that. So, that is one of
the issues. I am not suggesting that is what is going to
happen, but it is an issue that you need to be aware of
and it could happen.
MR. HANLEY said their remedy in many of these cases will
happen particularly after an open season, at which point it
gets very difficult to go back and change things. He thought
the state should consider that.
CHAIRMAN TORGERSON asked him to give the committee a short overview
of the reaction of the producers to the propositions.
MR. HANLEY said they had presented the propositions to them and
generally speaking they said the same thing:
One, we haven't decided on a lot of these issues. We
asked them, 'What do you think the tariff is going to be?
Are you going to bundle the costs, for instance the gas
conditioning plant, which is allowed under… and we don't
have a problem with the gas conditioning plant costs
being included in the tariff. FERC's typical policies
[are] unbundled. So, if we bring gas in, load it on the
pipeline and they're paying 50 cents per MCF to condition
that gas, I guess we would be concerned that we would
have to pay the cost for them to condition their gas - as
well as the cost, if there was any for us to condition
ours - if we're not going through their facility.
Back to your point, I guess. They said, 'We're going to
be fair. We don't have a reason not to be fair. This is
going to be an open process.'
Some of the things they did not list specifically. They
didn't have concerns with, for instance, the gas
definition issue that we raised earlier. They said that
was not their intent and not a problem making it clear
that all gas could get into this under their
legislation….
11:17 a.m.
REPRESENTATIVE DAVIES asked if another option for including the gas
conditioning plant in the tariff was to include it in their price.
MR. HANLEY explained that the tariff would be less and they would
get more for their gas. "I assume just like other processing
facilities on the North Slope. Those are included in the developing
costs…"
He emphasized that he is not saying that they should not be allowed
to include that necessarily.
What we are saying is that if we don't use the facility,
and that's generally what we understand FERC's process
is, that they be unbundled, that there basically be a
separate tariff without that gas conditioning cost in it
whether people brought it in from Fairbanks or if you
found gas somewhere else.
REPRESENTATIVE DAVIES asked what other options were available to
meet his concern about assurances that a pipeline would be expanded
later if reasonable conditions were met.
MR. HANLEY replied:
We're actually working on specific ideas for
legislation….I guess the only general idea is to give
FERC the authority to expand the pipeline. I don't know
what kind of guidelines, and frankly, it's always
dangerous from a company perspective to force things that
may not happen, but they don't have the ability now. I
don't know whether they would want it….
REPRESENTATIVE DAVIES asked if that would be in the context of
future open seasons.
MR. HANLEY replied yes:
There's all kinds of discussion and I'm getting close to
where I'd better be careful about what I say… I don't
believe you necessarily have to have open seasons for
future expansions particularly if the initial nominators
of capacity are the ones doing it.
11:20:03 a.m.
REPRESENTATIVE GREEN said he had alluded to several concerns with
capacity, BTU content, and how much it's depreciated, and asked
where he saw their proposed legislation getting "sticky."
You're going toward the fact that some agencies should
have some sort of regulatory authority and say, 'Well,
okay, here's your sliding scale for BTUs or if, let's
say, Anadarko were to have a major discovery in the
Foothills, but it's possibly five years down the road.
We've heard the operators talk about accelerated
depreciation. Would you come in, then, at the depreciated
rate and buy in, would you buy a compressor plant to go
from say $4 billion to $5 billion? We're getting some
details that could get sticky. Do you anticipate that
future suppliers would be involved in, I mean not just
Anadarko, as you say, Unocal is involved and some of
these other people, or leases that haven't been let yet.
Do you see that there's going to be a master type thing
proposed by, say, Anadarko or somebody that will cover
all these creative possibilities?
MR. HANLEY said they are working on some of the issues and haven't
come up with an exact answer on how to solve all the problems.
There is a hearing coming up and they are trying to be reasonable.
We look at it internally as to what issues could affect
us and our ability to develop gas and really what we're
going to have to do is potentially, if the open season
happens in January of next year, an application follows
in March or April, as they said it might, we'll have to
make a decision as to whether we think we can get access.
If we think there's not a very good chance for whatever
reason, we're not going to spend a lot of money going and
finding gas. Other companies are going to do the same
thing. So, future Foothills lease sales or activity on
the current lease sales - these are the kinds of
decisions we have to make long in advance of the pipeline
starting as well as potentially at an open season
nomination process before the application has been turned
in with a lot of the specifics. So, it becomes a concern.
CHAIRMAN TORGERSON asked when his legislation would be available.
"Our point is that these are issues that we think may need to be
addressed in any legislation…It won't be an amendment to any
particular piece."
MR. HANLEY said he hoped by the end of the week.
11:24:10 a.m.
REPRESENTATIVE OGAN said he thought that access issues were second
only to the route issues. "This leads us to make sure to encourage
companies like yours and others to lease, explore and be able to
have access to that pipeline…."
MR. HANLEY responded that there had been talk about reserving a
certain amount of space for things and as a company, that's
difficult to argue, because they wouldn't like it if other people
did that.
We would like the ability, if we choose to take the risk
of the open season, to be able to understand the terms
and conditions so we could bid. We would be on the hook
for the money whether we had the gas or not and, also,
during an expansion process, if we find a fair amount of
gas, we make a proposal and there's an open season for
other people to propose, we are able to compete on a fair
basis for that. That's really what we're looking for.
So, it is a balancing act for us in what we ask for
specifically, because some of these things get into
details and it's very difficult to regulate or dictate
the specifics or a project.
REPRESENTATIVE GREEN asked if he thought their proposal would be
available this week.
MR. HANLEY said that as soon as they got some of their specifics,
they would be sharing it with multiple individuals from Senator
Torgerson and this committee to the state to Senator Murkowski.
11:26:40 a.m.
CHAIRMAN TORGERSON thanked him for his testimony and announced the
Alaska Port Authority would give their update.
MR. BILL WALKER, General Counsel, Alaska Port Authority, thanked
the legislature for all the work that they're doing. He said that
he would like to answer the questions a little bit differently than
others. He said:
We have reviewed the proposed legislation as requested on
the federal side and it appears to us that the only
benefit is on the over-the-top option. It does not
clearly say over-the-top, but the other permitted routes,
the Alcan route and the LNG and YPC would not need such
legislation. By default, it appears that the only
[indisc.] that would benefit would be an over-the-top
option, because if it wasn't that, there wouldn't be much
reason for this legislation.
The existing approvals of permits of the two routes and
the fact that they are following existing corridors also
substantially reduce the odds of a judicial challenge to
the project that follows either or both routes. You had
some discussion about whether there would be litigation.
Based on what I heard today and certainly any time we
have legislation that impacts another permitted route,
our concern is that it would bring delay. It would invite
litigation from those that already have permitted routes.
The biggest enemy to a gas project in Alaska, we think,
is delay. You heard from CERA testimony at your last
meeting in Anchorage, I believe it was, is that there is
a market window. And as we continue to look at federal
legislation and studies, and hopefully not litigation,
the market doesn't wait for that. The market needs to
fill those orders. So, anything that's going to have
anything to do with delay we're very concerned about.
It appears to us that the legislation is primarily
designed to help the over-the-top route catch up and at
the same time eliminate the type of analysis that has
traditionally been performed on such infrastructure
decisions which can so substantially affect or even
eliminate access of significant areas of the country to
the use of essential highways for commerce.
It is disingenuous to imply that a number of pipelines
may be built in Alaska. Clearly, the decision to build an
over-the-top line does affect the odds of a pipeline
being built through Alaska. It is doubtful that two lines
will be built from Alaska to the Lower 48.
This bill would effectively repeal the treaty, federal
legislation and presidential findings that lead to the
Alaska Natural Gas Pipeline Act of 1976 and the Highway
Route selection. It is the job of government to determine
things like the route for essential infrastructure
services especially where the significant construction
cost essentially guarantees that one line will be built
in a generation.
The proposed bill and accompanying explanation could
leave one with the impression that the reason the highway
pipeline has not been built is due to the fact that the
U.S. and Canadian governments made the wrong choice when
they selected the highway route. The fact is gas
economics, technology, and cheaper alternatives for
supplying gas from within the Lower 48 led the
leaseholders of the gas to not build the line. Those
factors have changed especially over the last two years.
The highway route is economically viable today and may be
demonstrated to be just as profitable as alternate
routes, such as over-the-top and clearly would have more
long-term benefits for the long-term development of the
State of Alaska. This bill would go way beyond repealing
ANGTA, but would also prevent the FERC from determining
which route would best serve the economic interests of
both producers, transporters, end users and the people of
the State of Alaska.
I should add to that, as you know, the Port Authority
concept is a Y-line. It is the highway route and an LNG
option. Economic analysis has demonstrated that a large
volume pipeline is cheaper per unit of gas transported
than a smaller line. This bill would preclude analysis,
for example, whether a line to the Lower 48 that would go
the highway route might get significant economic benefit
from a branch line to tidewater, which we have heard very
little discussion of today other than from yourselves
that would double the carrying capacity of the main trunk
line. It might be in the producers interest to make sure
that alternative was not available so they could charge a
higher price or even guarantee a market for the LNG going
to the west coast of Mexico or the United States from
Indonesia or Australia.
We don't think there's anything in the federal
legislation that helps Alaska. You heard testimony today
that this federal legislation trumps the state
legislation, which eliminates the over-the-top. That's a
very big concern. Someone asked the question. It's nice
to hear these statements being made by individuals at
this table, but what happens if another group comes in?
If there's a merger? If there's a sale? If there's a
replacement of individuals who have given various
assurances? I mean the law is the law. Once the law is
passed, the law takes precedent over what Alaska has
done. That's of great concern to us.
We were very concerned about discussion of tax incentives
and that there needs to be a tax package - not as far as
this legislation, but there is a proposal in the Energy
Committee for tax incentives. What concerned us when we
first heard that is that we are also aware that, Karen
Knudson, the Deputy Director of the White House Task
Force on August 16, stated that President Bush's
administration supports construction of a pipeline to
carry Alaska North Slope natural gas to the Lower 48
states, but it is important that it does not include tax
incentives for any state the gas pipeline project would
have to work without tax incentives.
We were surprised that in the face of those kinds of
statements that there is now being proposed a package of
tax incentives. The Port Authority addressed that earlier
on. We heard Pedro Van Meurs '96 or '97 presentation of
what it would take for Alaska's gas to be commercialized.
He gave a shopping list of seven or eight items and one
of them was accelerated depreciation. I think he may have
used seven years versus the fifteen years.
MR. WALKER said that after the Port Authority was formed and
received their IRS exemption, he met with Pedro Van Meurs in
Bangkok and presented him with the IRS ruling.
TAPE 01-18, SIDE B
He was astounded saying it was far better than anything he had
envisioned as far as accelerated depreciation. He estimated the
economic benefit of a Port Authority concept to be $10 - $20
billion over the life of the project (stated in his memo of March
30). That is substantial, because at the time the price of oil was
$10 a barrel.
MR. WALKER said they are not concerned whether they get the tax
benefits or not, but their concern is the delay factor. "We don't
feel there needs to be any federal legislation for an Alaskan
project to go through. Our economic model shows that there's a
fantastically economic project available using the Y-line…"
Foothills permits are very valuable; YPC has permits also. Federal
legislation would make everything start from scratch again.
We think the federal legislation attempts to catch-up the
over-the-top route with those that are already permitted.
I think the message to Congress is that Alaska wants to
commercialize their gas now. I think as you will hear
soon, if you haven't already, that Alaskans predominantly
prefer an LNG project.
CHAIRMAN TORGERSON asked if they had been talking to Foothills
about the incentives the Port Authority might have to offer, like
being tax exempt up to a certain point.
MR. WALKER said they had and that they were tax exempt to the
Canadian border.
CHAIRMAN TORGERSON asked if he thought that exemption needed to be
reinforced in federal legislation. He said that the legislature
technically has no position until their studies are done. He asked
if there were any amendments to ANGTA or the Producers' bill that
would make their position more solid.
MR. WALKER said:
If the federal legislation gets involved, there's no
upside to us at all and there's all potential downside….
It's not like we feel they're going to get an additional
advantage. It's that I think we're going to get an
additional disadvantage of additional litigation, delay,
additional studies. That's what we're concerned about.
11:40 a.m.
REPRESENTATIVE GREEN asked if he was aware of a 5 - 20 percent
differential in pipeline cost and operation for an over-the-top
versus a pipeline that comes down into the state, which would allow
access to additional discoveries and asked if any comparisons had
been made of the benefits to the state.
MR. WALKER replied that they hadn't looked at the over-the-top
option. "Our economic model shows a return to the producers of a
little over $2 billion per year, with a netback of 75 cents per
MCF. We show a return to the state of Alaska in excess of $1
billion per year…"
He said they would have their updated model of 4 BCF down the Alcan
Highway this afternoon and that the work was being done by the
financial house of Taylor DeYoung in Washington D.C. He explained
that when the numbers in their model change, it doesn't mean they
have changed their mind; it means that they are using updated data.
"We are very anxious to make that available to anybody that would
like to see it. It shows that it's extremely financially beneficial
to the State of Alaska."
MR. WALKER added:
The statements that there is no market for LNG is just
not all what we have found. We've been in Houston four or
five times and met with those that make their money on
the marketing of natural gas from LNG and they are very
anxious for Alaska gas to come down in LNG form.
He said there is some question that El Paso's Texas project with
Phillips out of Australia would go through. "Bringing LNG from
Australia versus from Alaska - it just doesn't make sense. There's
a tremendous market out there and the way we found out about it is
we went to the market…."
CHAIRMAN TORGERSON thanked Mr. Walker for his comments and said
they would be discussing that tomorrow with tax incentives and
disincentives. He announced that they would take public testimony
and start with Scott Heyworth.
11:45 a.m.
MR. SCOTT HEYWORTH, Chairman, Citizens Petition for the All Alaska
Gasline to Valdez, testified that Lieutenant Governor Fran Ulmer
certified the petition and it is 'being met with incredible welcome
by the Alaskan people.'
None of these other projects say anything about gas to
Southcentral. Nothing is proposed. Nothing is on paper.
The LNG to Valdez has a spur line from Glennallen to
Southcentral to bring gas to our existing gas grid,
hooking it up near Sutton to the North Star. It is
integral to our project. LNG to Valdez has the most jobs
and the most revenues to the state and I'd be glad to
debate any person, any citizen, any oil company
executive, any governor at any time about that
discussion.
We believe the oil producers won't talk about liquid
natural gas to Valdez because it directly competes with
all their other LNG projects around the world, as Mr.
Walker just pointed out, which as you know, they are now
racing to bring their gas on line as soon as possible and
kill the LNG viability. That is a fact; it is not made
up.
I'm not opposed to the Y-line through Canada at some
time. The state gas authority that we are proposing in
our initiative will make that possibility available, but
that is after we build the line to Valdez first and after
everyone settles the huge food fight in Canada, mitigates
the crossing of some 10,000 parcels of land, settling
claims like the Foothills $4 billion problem and allowing
the Indian and tribal claims of Canada to get settled,
which is going to take many, many, many years. The oil
companies are now fighting the governor over which route
and they are also fighting each other over which federal
legislation they should pass to give the most tax breaks
to the already incredibly rich oil companies.
How much more money do they need, gentlemen?
While Alaskans suffer in education, roads, potholes, lack
of sewers. The all-Alaskan, all-American route doesn't
need, nor is it asking for, any of this special federal
legislation. It works on its own economics, no matter
what the oil producers keep spewing out with no proof
whatsoever that LNG development is uneconomical. It's not
uneconomical.
He said Alaska can reach Asian markets that are stable and U.S.
markets through the new facilities and terminals that El Paso has
announced they are building on the west coast (three in Mexico and
two in California). The Pedro van Meurs letter says that LNG
development is economical no matter what the oil companies say.
MR. HEYWORTH pointed out that after the tragedy of September 11
that this is an all-American route. LNG to Valdez through Alaska is
not going through a foreign country. He added, "We do not need
federal legislation. We do not need a federal energy czar. We just
need to do what the people of Alaska want to do, not what the
governor wants to do and not what the oil companies want you to do
for them."
MR. HEYWORTH read a portion of Governor Knowles' letter to Senator
Bingaman that said:
Early this year, I formed the Alaska Highway Natural Gas
Policy Committee, which held hearings across Alaska in
order to solicit the views of Alaskans on the many
complicated issues surrounding North Slope gas
development transportation. This Council received many
useful and thoughtful suggestions from various interested
parties. It is fair to say a consensus exists among
Alaskan businesses, Alaska Natives, organized labor,
environment and civil groups and the Alaska Legislature
that the following principles should be embodied, etc.
MR. HEYWORTH disagreed with the Governor's letter. He thought he
was totally out of touch with what the Alaskan people want.
REPRESENTATIVE OGAN said that is what his constituents tell him on
the street.
MR. HAROLD HEINZE, Special Assistant to the Legislative Majority,
said he hadn't heard anything that was in the state's interest in
this legislation. He offered the perspective that the state needs
to focus on expanding its role in whatever happens at a federal
level in this legislation. He said:
The original ANGTA legislation we've talked about is
several decades old. Frankly, at that time the State of
Alaska was not overly sophisticated in the executive and
administrative branch and probably in the legislative
branch. Since then, we have a Joint Pipeline Office and a
Regulatory Commission. I went through and read the acts,
the Right-of-Way Leasing Act, on and on. There's about
seven or eight pieces of legislation that you have passed
in the last decade and a half very specifically dealing
with the gas issue. So, the state is very sophisticated
now. I think we should have an expanded seat at the
table. And I think any federal legislation should provide
for that. I think it should be almost a litmus test of
whether anybody who asks you for support whether they
will support the state in that role.
He said he was concerned that our treaty with Canada provides a
number of things that are important to Alaska, like guarantees of
allocation of throughput capacity and not inflating the cost, vis a
vis the tariff, which would affect our wellhead. "If we end up in a
situation where some different route is selected, that treaty is
out the window…"
MR. HEINZE said that it also seems to him that in the end in Alaska
we have to come to grips with what is best for Alaska and it may
not even be a project that is on the table today. That needs to be
another reason why Alaska needs to be at the table. He has heard a
lot of conversation from the producers this morning about lowest
cost and that's not the state's motive. "There is a revenue benefit
to the state, which is affected by cost, but there is a non-revenue
benefit that's also very important to many people…."
He urged the committee to focus on what's best for Alaska when
reviewing legislation this afternoon. If the producers want our
support, "I think you should put the price tag on it of being their
support of improving Alaska's standing before the federal
government on this issue."
CHAIRMAN TORGERSON thanked him and announced a break for lunch.
11:58 a.m. - 1:35 p.m. - LUNCH BREAK
TAPE 01-19, SIDE A
MS. NAN THOMPSON, Chairperson, Regulatory Commission of Alaska,
said that the last time she testified before this committee, she
highlighted some of the issues that related to her agency's
jurisdiction relative to the FERC. She was asked to comment today
on the topic generally of what federal legislation should include
to resolve some of the uncertainties.
I think it's generally a good idea to reduce
uncertainties. I would agree with the producers. I would
probably call them uncertainties rather than risks, but
the process will go much more smoothly if those
uncertainties are resolved. There would be less delay and
less costs associated with it.
The focus of my comments today is suggestions about what
should be included in federal legislation to clarify my
agency's role. I wanted to talk first about what
generally our regulator would have to do or what a
regulator should have to do with this pipeline.
In administrative law, we're the equivalent of the
police. We make sure the pipeline is operated fairly and
consistently with the public interest. I would argue that
our role is especially important in a pipeline like this
because some of the state's gas is going to be taken to
market through this line. As a state agency we have a
very unique responsibility with respect to this
particular proposed pipeline. Also, the role of both my
agency and FERC might be different with regard to this
gas pipeline than other gas pipelines in the Lower 48
because this is the only route for the foreseeable
future. In the Lower 48 there's a complex network of
pipelines and there's many different markets. So,
producers have options for shipment that don't exist here
where there's only one option. That's an area where
regulators traditionally have a stronger role. When there
is a commercial interest that has an opportunity to
exercise monopoly power to control an asset, the
traditional role of a regulator would be to make sure
they use that power fairly and consistently with the
public interest.
In this particular case there are two areas where the
state's interest could be better protected by having the
regulatory roles of FERC and my agency clarified. The two
areas are the rates to be charged for shipments within
the State of Alaska and also the interconnection points.
Section 13(b) of ANGTA does talk about how the state has
a right to sell its gas instate and requires that FERC
allow that to happen. Its language says FERC has to sign
all the necessary permits to make that happen, but it's
silent on the issue of where those interconnection points
are and how the placement of those points is going to be
determined and what happens if after the line is
originally built another interconnection point is
requested. That is something where additional input from
the state would be real important.
My recommendation for the best model about how state
regulatory input could be a part of the process is rather
than creating a separate process, to have it formalized
by the creation of a joint board. A joint board is
something that there's some reference to in Section 209
of the Natural Gas Act to input from a state agency and
review by FERC, but the model I'm thinking of is one that
I'm familiar with in the context of telecommunications
regulation. There it's one where on issues where the FTC
needs to work with the state, there is by statute, in
Section 410 of the Telecommunications Act, the creation
of a joint board. The board in that statute has
commissioners from different states and a consumer
advocate and some of the FTC commissioners. That
particular joint board only adjudicates issues that are
referred to it by the FCC. So, it would be issues that
the FERC, in this case, wanted input from the joint board
on and then that joint board makes recommendations back
to the FERC, which decides to adopt or reject them. But
it's a process that exists now in federal law and in
other areas that are helpful to provide state input and
it's a process that I know this particular FERC would be
familiar with, because Pat Wood, who is the new chair,
was on the Federal Universal Service Joint Board in the
telephone context. It's a process that has functioned
very well and I don't know why we couldn't have a
specific reference in federal legislation creating a
similar joint board. Again, all the issues that the FERC
needs to adjudicate with respect to this pipeline are not
ones that are important to the state. But with regard at
least to instate rates and the interconnection points
instate, it would be useful to have those issues referred
to a joint board so that we'd have some opportunity for
input.
I think in terms of other important provisions, Section
13 that I talked about the last time I was before this
committee, I still think is important. It's that section
of ANGTA that gives the state - insures that there's
nondiscriminatory access to the line that says you don't
have to be a pipeline owner in order to ship gas on that
line, which would be important if the state wants to
continue to encourage development of its oil and gas
resources. It also insures under Section (b) that the
state can use its royalty gas instate and requires the
FERC to make sure that happens. Those are my suggestions
for what should be in federal legislation that goes
forward.
CHAIRMAN TORGERSON said they had language about the joint boards,
but they didn't give it any powers and her suggestion was that it
would only have the power to recommend back to FERC to make
decisions. He asked if it would be advisory in nature.
MS. THOMPSON replied that it is and that's the model that is now in
federal law that she is familiar with and that works.
When you say only advisory, the purpose of, at least in
the FCC context, of giving issues to the joint board,
it's ones where we, as state commissioners, have more
expertise and knowledge. The FCC doesn't always do
exactly as recommended, but the reason [joint boards]
were created was to provide more input for them and it's
well taken.
CHAIRMAN TORGERSON asked her to think about how large the board may
be.
REPRESENTATIVE GREEN asked if she had heard the testimony of
Anadarko. She indicated she hadn't. Representative Green asked if
she thought they should advise on the myriad of problems that are
involved in trying to regulate the quality of the gas and windows
later on.
MS. THOMPSON responded:
If it would be helpful to the FERC, yes. Again, the model
I've seen for a joint board of this kind is when there
are issues that the federal agency needs local input on,
it's a good way to get it. We are sometimes less
encumbered by some of the rules and we're here.
REPRESENTATIVE GREEN said that some of this is covering new ground
and he wanted to know if they wanted to be an observer or an active
participant.
MS. THOMPSON responded that they don't need to be involved in every
issue.
In some instances, expansion is a tough one; the
application process is an easier one. I think under the
existing statute, there's already an adequate opportunity
for considerations in the state's interest and that's not
something, if in the existing statute and legal scheme
there's already opportunity for the state's interest to
be considered, there isn't a need to run it through this
other process. It's only in areas where we as a state
have unique interests that aren't otherwise protected
under the legal scheme that regulates gas pipelines. For
example, the instate rates - there isn't another state
that I'm familiar with that has the same issues with
regards to instate rates that we do. And the same thing
with access. Those are issues that are unique that
existing regulatory schemes for gas pipelines don't
account for - the type of issues we're going to face on
this pipeline.
REPRESENTATIVE GREEN said he was concerned about new discoveries
and new gas royalties on other than just state land. "That starts
to get pretty roiled then, especially if it's after the initial
operation."
MS. THOMPSON responded that expansion would be a different issue
than interconnection and she would have to think more about what
their role would have to be.
REPRESENTATIVE DAVIES said they are concerned about gas being
discovered in the Yukon Basin, for instance, and the unique
circumstances that would present.
MS. THOMPSON replied:
In that case, a provision like the one that's in Section
13 that allows nondiscriminatory access to a line would
be important. So that if there is gas discovered later by
someone who does not own an interest in the pipeline,
they can get it on. And then I imagine the same rules
would apply to expansion in any FERC pipeline…The way it
works generally in the Lower 48 with gas pipelines is the
pipeline owners, if it's a tradition down there, it's
pipeline companies after a while that own it and they
want to make money, so they have an interest in
expansion. If there's gas and it needs to get to market,
they can make money taking it to market. So, usually
expansion isn't an issue that's contested under those
circumstances. That's not usually the problem.
REPRESENTATIVE DAVIES asked if she was proposing changes to ANGTA
or to the proposed Producers' legislation.
MS. THOMPSON answered that the big confusion she sees is the status
of the existing ANGTA permit and the Natural Gas Act application.
She could see that it could potentially be a problem if the goal is
to get a project built.
Anywhere where there's a lot of unresolved legal issues,
clarification might help the whole process go smoother.
It's in regard to the relationship of those two statutes
where clarification would be most helpful. If not,
opining on whether or not I think ANGTA is a good law,
you could argue about it either way.
REPRESENTATIVE DAVIES asked in the ANGTA if are the provisions of
the state's interest are advisory or mandatory.
MS. THOMPSON replied that is a hard question to answer. "Section
13(b) talks about the rates and that's probably advisory rather
than mandatory at least in terms of the state's role in setting
intrastate rates now, but it is a statute that can be read
different ways, which is part of the reason she thought it would
help to clarify it.
REPRESENTATIVE DAVIES asked about the access.
MS. THOMPSON answered that there wasn't a very clear provision for
access in there now.
Under state law we have a joint use and interconnection
authority and that would satisfy us to pipelines in the
states, but it wouldn't apply to this one clearly now.
That has standards for joint use and interconnections
that I think might be a useful guide. It's in AS 42.06
now, but there isn't a clear provision now under ANGTA
for interconnection within the state with other
pipelines.
CHAIRMAN TORGERSON asked instead of a joint committee made up of
FERC and RCA, would it be better to put language saying that FERC
must seek their position on access issues or other issues prior to
making their decision.
MS. THOMPSON answered that from her experience the decision making
process goes better if the people who were supposed to make a
decision were looking at the same record.
CHAIRMAN TORGERSON thanked Ms. Thompson for her testimony and said
they would hear from Mr. John Katz next.
1:51 p.m.
MR. JOHN KATZ, Director, State and Federal Relations and Special
Counsel to the Governor, said his testimony would be divided into
three parts: first, the congressional situation as he understands
it; two, where we are heading in drafting legislation; and three, a
review and consultative process of where we go from here. The
committee will hold a hearing devoted specifically to the natural
gas pipeline on October 2. He said that it is no longer clear that
it will be an energy package per se and the timing of that package.
The committee wants to either report comprehensive energy
legislation to the full Senate or to participate in deliberations
of the full Senate on economic stimulus packages and other vehicles
that might carry some portions of the national energy package.
The chairman wants the hearing on October 2 so he will be prepared
for any eventuality in the Senate. If he has the time to produce
comprehensive legislation, that would be his preference, but if he
doesn't he would like to be in a position to propose amendments to
a fast moving vehicle such as an economic stimulus package. There
has been some talk about dealing with exigent issues in an energy
bill and perhaps picking others up later on.
MR. KATZ said there were some things that were emerging out of the
committee's early deliberations that are worth mentioning.
The first is that among some members of the Senate there
clearly is a dynamic between ANWR and the natural gas
pipeline. Some members are in opposition to ANWR and feel
that the natural gas pipeline is a weighty substitute. We
have taken the position that both projects are
essentially in the national interest and neither one
should have preference over the other. They both now
present jobs in bad economic times and national energy
security. Another thing that is of concern to us is that
it may be that some variant of the Producers' enabling
legislation that ends up in the markup vehicle being
considered by the committee. That, of course, is a
concern to most of us on this teleconference if that
occurs. We and others have been making arguments on that
point.
MR. KATZ continued:
A few weeks ago the Governor asked me to head up a
legislative drafting group that included officials in the
state administration in an effort to come up with a
comprehensive legislative approach to the pipeline
project. This is not something that we often do or feel
the need to do in connection with federal policy, but it
seemed useful and appropriate in this context. Since
then, the committee has met on several occasions to
consider successive drafts of legislation. In the last
couple of days we have finalized a draft which we are
internally comfortable with and I'll describe in a minute
how we proposed to proceed from there.
MR. KATZ said he wanted to talk about the draft legislation. It is
premised on amending the ANGTA of 1976 as they felt that was the
best way to accomplish the Alaskan goal of constructing a pipeline
in an expeditious way. It was the cleanest approach. ANGTA is
existing federal law and making amendments would modernize it and
reflect certain preeminent national or state interests.
So, one major purpose of the legislation is to modernize
an expedited process for executive branch review of an
application for construction.
A second major principle is that everything we've done is
tied to construction of the Alcan route. We have tied
everything, then, to the southern route. So, for example,
we do propose in there various tax benefits some of which
have been broached by Phillips Petroleum, tied to the
southern route. They include accelerated depreciation
from 15 years to seven years, investment tax credit on
construction of 10 percent and a provision, which deals
with the question of commodity risk - that is if the
price of natural gas goes below a certain unacceptable
floor, our research, particularly by the Department of
Revenue, indicates that those provisions could have
significant beneficial impact on the rate of return and
we hope would, therefore, benefit the southern route.
As all of you know, the Governor has proposed certain
principles, which we have sought to draft into federal
legislative language. Briefly, they include the concept
of a project labor agreement, the idea of buying Canadian
and U.S. steel if that steel is available and if it is
available at reasonable prices. Also, provisions relating
to local hire of Alaskans, Native hire and the use of
Alaskan contractors wherever possible. We also have
provisions that deal with other issues that I know the
committee has heard testimony on such as access to [the]
pipeline by nonproducers. We recognize that this is
federal legislation and that it is inevitably dealing
with federal interests, but we also think that it's
important that that legislation reflect and be protective
of certain state interests and while there is a line to
draw between going too far in federal legislation, we
don't think we've crossed that line.
Moving on, then, to the consultative and review process,
everything that we have contemplated has now been
telescoped by virtue of this hearing on October 2. We had
originally advocated to the committee that the hearing be
on October 8, which would have given us more time to do
the things I'm about to describe. We do want to cooperate
with the committee and with the Alaska legislature and I
want to be careful here, because I don't want to stumble
into the dynamic that I know has been discussed today.
The perspective on my testimony here is the Washington
D.C. perspective of affectuating Alaska's interests in
Washington and our collective interests as best we can do
it.
On August 5, Pat Pourchot, the Commissioner of Natural
Resources, wrote Chairman Torgerson offering certain
information and volunteering to provide other information
and to cooperate as best we can. That is an approach and
an attitude that we continue to adhere to. Our current
thinking with respect to the process is to discuss on
Tuesday of next week with the Governor's Alaska Gas
Policy Council the general direction that we have taken
in the legislation and generally the provisions to
implement that direction to determine whether they are
generally comfortable with that. We hope in that same
timeframe to involve the producers and the gas pipeline
companies in that same conversation. And then, we would
want to bring this to the formal attention of Chairman
Torgerson and your committee.
As yet, the Governor has not been intimately involved in
the legislative drafting. He knows the direction we're
headed in, but we want to conclude some of these initial
steps that I've described so that he's in a position to
know not only what we recommended, but to hear from some
of the other groups. Then we are hoping for an
interaction with the committee.
The next step in our process would be to bring this to
Senator Murkowski. He is our Alaskan ranking member of
the committee and it's important in terms of protocol
that we work with him and through him as much as
possible. We will then talk to the chairman about our
legislation. We have been advocates with the chairman and
the ranking member and with their staffs on general
principles that we think are important in this
legislation and have expressed our concern about the
Producers' enabling legislation, but we have not provided
legislative language and until we complete the process we
just described, we will not provide the language to the
committee, although I very much alternately want to do
that, because I think there's a vacuum there that
Alaskans should seek to fill.
In closing I want to offer one personal observation based
on my own experience back here. I was here on and off in
the early days of congressional consideration of the
Alaska National Interest Lands Conservation Act in 1978 -
79 and at that point there was not much consensus among
Alaskans and we suffer from that. When, however, we
talked among ourselves and reached a consensus on how to
approach the federal government, we became much stronger
and our advocacy registered much more in the process. To
the limit and extent this office and I can contribute to
building that in the case of the gas pipeline, we will
and we want to work with other Alaskans who accomplish
that. With that, Mr. Chairman, I'll stop and see if the
committee might have any questions.
2:06 a.m.
REPRESENTATIVE GREEN said he mentioned three possible concessions -
accelerated depreciation, construction tax incentives and a floor
on the gas value - and asked if he is concerned if those are
granted federally, that it's almost a given that the state might
also do the same thing.
MR. KATZ answered that he didn't have specific concerns about
translating that exactly into the three provisions of state law,
but that's a very good question.
Yesterday, I was forewarned by one member of the
committee that as we come back here to present what we
are expecting from the federal government in terms of
legislation, some members of the committee may ask us
what we are thinking about in terms of changing the state
fiscal regime or other issues that might expedite the
construction of the pipeline.
REPRESENTATIVE GREEN said he thought that was a pretty delicate
line, "…to offer carrots to help get the line in the direction we
want it, but we may also then be almost showing our hole card."
MR. KATZ replied:
Representative Green, I think we need to be careful about
that, but I didn't get the sense, and it may change, that
there's a specific quid pro quo, that is if you guys
recommend X, you'd better make sure you include X in a
state law, but I do think there will be a general inquiry
about what Alaska is thinking in terms of things that we
can contribute that would expedite the pipeline. That
might be modifications in the fiscal regime, it might be
some form of participation or other things that the
committee would be aware of.
CHAIRMAN TORGERSON thanked Mr. Katz for his testimony and said they
would go back to Joe Marushack and Ken Konrad.
MR. MARUSHACK said that the first written question the committee
asked them was how the ownership of the pipeline by the producers
corresponded to ownership provisions in ANGTA. His answer was that
they think this is a good example of why ANGTA is inconsistent with
state requirements and new legislation is needed.
At the time of the waiver for the package permitting
producers to participate, there was a provision for 30
percent equity, we believe, for the producers and that
waiver could be approved and exceeded if it was subject
to approval by FERC and the Department of Justice. At
that time, as you are aware, the pipeline and the whole
gas system was bundled and pipelines bought and sold gas
at the wellhead and that's not the case any more. So,
that's an example of what's changed.
CHAIRMAN TORGERSON asked if under ANGTA they could own 100 percent
of the line if they met the antitrust test.
MR. KONRAD said that was right. He said that in today's regulatory
environment, it's open access and the point becomes much more moot.
MR. MARUSHACK said they are very comfortable with all antitrust
tests and their legislation was not intended to bypass any of that.
CHAIRMAN TORGERSON said, "Under ANGTA, you're not precluded from
owning all the line. You just have to pass an antitrust test. The
other question was, does your legislation do away with that same
antitrust test?"
MR. MARUSHACK replied that he didn't believe that it did, but they
are open to changes to that if it makes the process better. "We are
not concerned about any antitrust issues. We will address them
all."
MR. KONRAD added that back then it wasn't open access.
CHAIRMAN TORGERSON asked if they supported seven years accelerated
depreciation and they indicated they did support it.
2:12 p.m. - 2:16 p.m. BREAK
CHAIRMAN TORGERSON said he was going back to Washington on Saturday
and he wanted to formulate the committee's position today. He said
when the committee was formed, it was charged with coming up with
policies and to represent the legislature. He said he had
amendments that are suggested legislative fixes and are broken down
into three or four major categories. The first one is ANGTA 1 with
access issues 1 - 6, taxation issues 1 -2. Most of what he heard
today was covered in these amendments. He said this is a broad
brush approach, so if they are totally missing the point, they want
to get it.
REPRESENTATIVE PORTER moved to adopt proposal 1 (ANGTA 1).
CHAIRMAN TORGERSON explained that the proposal:
…Asks the committee to ask Congress to reaffirm that the
Alaska Natural Gas Transportation Act is the prevailing
law with respect to the transportation system for
delivery of natural gas to the Lower 48. It also requests
that Congress allow amendments to that law as long as it
doesn't change the basic nature and general route
approved by the transportation system that was already
there.
The justification is as follows:
Justification for Proposal ANGTA 1
Before the enactment of ANGTA there were three competitive
proposals for an Alaska Natural Gas Transportation System.
Specifically those proposals were:
1) The Arctic Gas Project, which proposed an overland
pipeline extending from Prudhoe Bay, across the North
Slope of Alaska to the Canadian Mackenzie Delta and
thence southerly through Canada to the lower forty-eight
states;
2) The El Paso LNG Project, which proposed an overland
pipeline extending from Prudhoe Bay to Southern Alaska,
where the gas would have been liquefied and transported
by tankers to terminals in the western United States; and
3) The Alcan Pipeline Project, referred to in Canada as the
Alaska Highway Pipeline Project, which proposed an
overland pipeline extending from Prudhoe Bay to
Fairbanks, Alaska, and thence southeasterly through
western Canada to the lower forty-eight states.
All of these proposals were filed under the Natural Gas Act,
debated by FERC, and Congress passed ANGTA, which authorized the
President to select a route. The President then approved the ALCAN
route and entered into a treaty with Canada, which was later
confirmed by Congress. The Canadian Parliament also passed the
Northern Pipeline Act, the equivalent of ANGTA. ANGTA was never
repealed. In fact, in 1992 the federal inspector recommended that
ANGTA be abolished, but Congress rejected that notion.
CHAIRMAN TORGERSON recommended that they adopt ANGTA 1.
REPRESENTATIVE DAVIES said he was concerned about the focus on
delivery to the contiguous states and wondered if it should be
broader and include Alaska specifically and the possibility of
other markets.
CHAIRMAN TORGERSON said that language was in the purpose section of
ANGTA. "We could chop it off anywhere you want as long as we are
saying that ANGTA is the prevailing law and there was only one
route under that law and that's the direction."
REPRESENTATIVE DAVIES said:
Mr. Chairman, I believe that within ANGTA there are
provisions that refer to the delivery from that system
into Alaska, specifically, and also the off take
provisions could allow, essentially, for the Y-line to be
constructed…. I think the interests of the State of
Alaska are clearly broader than just delivering gas to
the contiguous Lower 48….
CHAIRMAN TORGERSON said you could put in language saying "to the
contiguous states or as directed under ANGTA," but that is already
in Section 13(b).
REPRESENTATIVE DAVIES proposed an amendment to insert "to Alaska,
the contiguous states and other markets" on line 4 after "to the".
It would then read, "for delivery of Alaska natural gas to Alaska,
the contiguous states, and other markets and the construction and
initial operation of that system."
CHAIRMAN TORGERSON asked if that would allow for the Y-line and
Representative Davies indicated that it would. There were no
objections to Amendment 1 and it was adopted.
TAPE 01-19, SIDE B
CHAIRMAN TORGERSON asked if there were objections to ANGTA 1. There
were no objections and it was adopted as follows:
The Joint Committee on Natural Gas Pipelines respectfully
requests that Congress reaffirm that the Alaska Natural
Gas Transportation Act (ANGTA) is the prevailing law with
respect to a transportation system for delivery of Alaska
natural gas to Alaska, the contiguous states, and other
markets, and the construction and initial operation of
that system.
The Joint Committee on Natural Gas Pipelines also
respectfully requests that Congress allow certain
amendments to ANGTA to modernize the act without changing
the basic nature and general route of the approved
transportation system or otherwise preventing or
impairing in any significant respect the expeditious
construction and initial operation of the transportation
system.
2:24 - 2:26:41 p.m. - BREAK
CHAIRMAN TORGERSON announced that ANGTA 2 was up for consideration.
REPRESENTATIVE GREEN moved to adopt ANGTA 2.
CHAIRMAN TORGERSON explained that it says: "The Joint Committee on
Natural Gas Pipelines respectfully requests that Congress adopt the
provisions that prohibit the over-the-top route through the
Beaufort Sea as a pipeline route."
He said it would be consistent with what passed the House and they
have heard the justification many times. It would ask the Senate to
adopt the same provisions that passed the House.
The justification is as follows:
· The Alaska Legislature has banned this route in Senate Bill 164.
· The House of Representatives in Congress has adopted an
amendment in the Energy Bill to ban this route.
· This route seriously decreases the benefits Alaskans' will
receive from the development of natural gas.
· The North Slope Borough and the Alaska Eskimo Whaling Captains
oppose this route.
REPRESENTATIVE DAVIES moved to delete "the" from before
"provisions". There were no objections and it was so adopted.
REPRESENTATIVE OGAN asked if the justification was part of the
language. It wasn't.
SENATOR OLSON said that adding the Eskimo Whaling Captains
opposition would give it a little more clout.
CHAIRMAN TORGERSON responded that the reason he didn't add them was
because he hadn't seen an official document from the International
Whaling Commission opposing the over-the-top route, although he had
heard a number of them testifying against it. If there was such a
letter, he would be glad to use it in his presentation. Senator
Olson said he would try to get one.
CHAIRMAN TORGERSON asked if there was any objection to adopting
ANGTA 2.
REPRESENTATIVE OGAN objected, pointing out that the route seriously
decreases the benefit to Alaska and that they have a constitutional
obligation to develop the resources to the maximum benefit.
CHAIRMAN TORGERSON said he wished that Congress would pay more
attention to our constitution, but he understood what he was
saying.
REPRESENTATIVE DAVIES added that previous testimony had pointed out
that low cost does not equal maximum benefit necessarily.
REPRESENTATIVE OGAN said this was an important amendment because
they said if Congress does prohibit the over-the-top route, they
are going to pull the plug on the project. He reminded them that
they had been assured that at the end of the day the producers
weren't going to build something Alaskans didn't support or sell
gas to someone that would build a pipeline over-the-top. He thought
that maybe the strategy of the producers was to get all the
information in, then make a presentation to the legislature and
that might be the proper time to say yeah or nay. "This amendment
may be the trigger that gets people prepared to draw lines in the
sand and we've got another 25 years of stranded gas."
CHAIRMAN TORGERSON responded, "We're not going to allow an over-
the-top route to be built. So if they're going to pull the plug,
let's do it today and get it over with."
REPRESENTATIVE GREEN said he had the same concerns at first, but we
have since found out that other people and organizations have come
forward saying they would consider it and the producers have
testified that they wouldn't object to selling the gas to someone
else.
REPRESENTATIVE OGAN added that they had said that about LNG and the
question is, "At what price - a price that will make the project
economic or price that would kill the project? The guy with the gas
makes the rule…"
REPRESENTATIVE PORTER said he intended to support the proposal, but
said:
After the work is done by the producers and they
determine that that route can be done with environmental
safety and all the other concerns that we have, I would
probably not be opposed to reconsidering after our line
is already constructed to do what was suggested by one of
the testifiers to bring Delta gas over to Prudhoe Bay and
down our pipeline.
CHAIRMAN TORGERSON asked for the roll call. SENATORS OLSON, ELLIS,
and TORGERSON; REPRESENTATIVES DAVIES, CHENAULT, FATE, OGAN,
PORTER, and GREEN voted yes and the ANGTA 2 as amended was adopted.
CHAIRMAN TORGERSON announced ANGTA 3 to be up for consideration.
This is an attempt to handle Anadarko's problems and reads:
The Joint Committee on Natural Gas Pipelines respectfully
requests that Congress create a mechanism for allowing
the fair distribution of the costs allowed to be included
in the tariffs associated with a conditioning plant(s).
The justification is:
Other producers will likely discover gas downstream from
access to a conditioning plant in Prudhoe Bay that will
require them to construct an additional conditioning
plant. These producers will need to be treated fairly
with regard to tariffs to encourage development and
exploration of all North Slope gas resources.
REPRESENTATIVE OGAN moved to adopt Amendment 3.
REPRESENTATIVE DAVIES asked if he seriously considered discussing
unbundling the costs.
CHAIRMAN TORGERSON said he didn't discuss it with anybody. He just
asked for a fair mechanism; he didn't know what language would be
used. "All that has to work here is that we create something that
if the conditioning plant is built in one location and someone
builds one downstream, that we don't pay the tariff for the
upstream one…."
REPRESENTATIVE DAVIES moved to amend line 2 by inserting
"unbundling or otherwise" after "a mechanism for". So, it would
read:
The Joint Committee on Natural Gas Pipelines respectfully
requests that Congress create a mechanism for unbundling
or otherwise allowing the fair distribution of the costs
allowed to be included in the tariffs associated with a
conditioning plant(s).
CHAIRMAN TORGERSON said he didn't have a problem with that.
SENATOR OLSON asked who was going to make the determination of what
a fair distribution of costs would be.
CHAIRMAN TORGERSON replied that the FERC would.
We want Congress to consider creating a mechanism that
tells FERC to look out for these kinds of things and to
treat people fairly that have different conditioning
plants. According the FERC, that's a given, but according
to what we hear from other people, it's not.
REPRESENTATIVE DAVIES added:
I completely concur with your last comment in that when
we listen to FERC, they seem to be saying that market
forces will determine those things and this is such a
unique situation, essentially almost a monopoly position,
that most people think that only one pipeline will be
built. I think we need to send a message to Congress to
send a message to FERC that they need to look at that
issue a lot more carefully than they apparently normally
would.
REPRESENTATIVE OGAN said that maybe the language could be broader
than just conditioning plants and maybe add "and associated
infrastructure."
CHAIRMAN TORGERSON suggested keeping that in mind when they go
through the access sections. He thought they had covered those
points, but they need to make sure. He also didn't think they
needed to be that detailed.
CHAIRMAN TORGERSON asked if there was any objection to the
amendment to ANGTA 3.
REPRESENTATIVE FATE asked since "unbundling" is such a general
term, if it might cause some unintended consequences. He said he
was uncomfortable with that language.
REPRESENTATIVE DAVIES explained, "In my mind, the unbundling speaks
having transparency with respect to the way the tariffs are put
together and that's why I offered the amendment."
REPRESENTATIVE FATE replied that his explanation explained it more
clearly than his amendment.
REPRESENTATIVE DAVIES withdrew his amendment and stated Amendment 2
which inserted "transparent and" after "allowing the". There were
no objections to adopting Amendment 2.
CHAIRMAN TORGERSON asked if there was any further discussion of
ANGTA 3 as amended. There were no objections and ANGTA 3 as amended
was adopted.
CHAIRMAN TORGERSON announced ANGTA 4 to be up for consideration.
REPRESENTATIVE GREEN moved to adopt ANGTA 4.
CHAIRMAN TORGERSON said they hear about some of the provisions of
ANGTA that are dated and the Dempster Lateral is one of them. He
thought it might go away automatically, but he thought it should be
discussed. It says, "The Joint Committee on Natural Gas Pipelines
respectfully requests Congress to eliminate the Dempster-Lateral
route from provisions in ANGTA."
The justification is that the Northwest Territories has another
route that they are considering and the Dempster Lateral plan has
been gone for some time.
REPRESENTATIVE DAVIES said he wondered what Alaska's interest was
in doing that, although he wouldn't object to using it as an
example after 1, which talks in terms of modernization.
REPRESENTATIVE GREEN suggested adding, "if necessary".
REPRESENTATIVE DAVIES again suggested using it as an example under
ANGTA 1 and removed his objection.
REPRESENTATIVE GREEN moved to add ", if necessary." after "ANGTA".
There were no objections and it was adopted.
CHAIRMAN TORGERSON asked if there were any objections to ANGTA 4 as
amended. There were no objections and it was adopted and reads: The
Joint Committee on Natural Gas Pipelines respectfully requests
Congress to eliminate the Dempster-Lateral route from provisions in
ANGTA, if necessary.
CHAIRMAN TORGERSON announced ANGTA 5 to be up for consideration.
REPRESENTATIVE GREEN moved to adopt ANGTA 5.
CHAIRMAN TORGERSON explained that this proposal goes to the
withdrawn partners issue with Foothills Pipe Lines, Ltd. that is
the other issue that is often raised as a block. It basically says
that the Committee respectfully requests that Congress pass
legislation that limits funds the withdrawn partners of the
approved transmission system can collect in a tariff.
The justification is that the current owner of the authorization
under ANGTA is Foothills Pipe Line Ltd. Previously, Foothills had
several partners, which over time have withdrawn from the
partnership. The withdrawn partners spent funds in support of the
ANGTA route and have filed documents with the FERC to include
recovery of those costs in any tariff for transportation of Alaska
natural gas. Foothills has been negotiating with the withdrawn
partner to resolve this outstanding liability. However, those
negotiations have not been successful to date.
Foothills and its partners should be compensated for the work done
in furtherance of the ANGTA system that does not need to be
duplicated. If the work needs to be redone or modernized, they
should not be entitled to collect for the funds previously
expended. Accordingly, the Joint Committee should support this
request.
2:48 p.m.
CHAIRMAN TORGERSON explained in other words this means that the
only thing they can claim in a tariff is reimbursement for work
that would not have to be duplicated under the regime of ANGTA.
This, in his mind, would do away with the amounts in question.
REPRESENTATIVE FATE said:
The limiting factor of the collection of those tariffs
was something that was a tangible asset and the
withdrawing of a partnership is usually something
conducted outside of the parameters of this ANGST as a
controlling factor, but is something that is usually
within either corporate structure or a business
enterprise. I am not sure that however this came about,
that a withdrawn partner should be entitled to anything.
CHAIRMAN TORGERSON said he didn't disagree and maybe he had poor
language. But they have heard the claims out there.
The withdrawn partners is probably a business arrangement
between two grown-up corporations that can make any kind
of deal that they want to. My concern is that there is
not a contingent liability for adding to the tariff
expenses that are not justifiable.
REPRESENTATIVE GREEN said he could see where Representative Fate
was coming from,
…but if you gain something from what has been done in the
past, whether it's $4 billion or several hundred million,
if that's a benefit towards getting this thing done, then
there probably should be some ability to recoup them.
CHAIRMAN TORGERSON said they had heard from the producers that
there may be a liability out there and:
I'm just trying to make that go away. I think it's fair
that they ask - and it's not our bailiwick; it's
Congress's, but if we're going to use the framework of
ANGTA, we don't want to hang it up with an extraordinary
expense for things that aren't Foothills'.
2:54 p.m.
REPRESENTATIVE DAVIES said he was a little concerned, but agreed
with the intent. He asked if withdrawn partners could actually
collect from a tariff. He wondered if it shouldn't read more like
legislation that limits tariff charges that are intended to pay the
withdrawn partners.
CHAIRMAN TORGERSON said that it could actually say, "any carried
forward costs from prior dates".
REPRESENTATIVE DAVIES said he thought the way the verbs should go
together should limit the tariff charges to legitimate expenses.
CHAIRMAN TORGERSON agreed.
REPRESENTATIVE FATE said, "Limiting tariff charges, even though
it's certainly better to cut them out, still opens the door to
tariff charges."
CHAIRMAN TORGERSON said they could add, "if appropriate."
REPRESENTATIVE FATE said his concern was if that was even
appropriate.
CHAIRMAN TORGERSON said that according to Foothills, they don't
have any carried forward charges. He thought they were writing off
all of their expenses up to this time.
REPRESENTATIVE FATE said if there were a window of opportunity,
they would find it.
REPRESENTATIVE PORTER wondered if getting into this issue was more
confusing than staying out of it. It seemed if all the work done by
the withdrawn partners had been done by Foothills under contract,
there wouldn't be any discussion. All the costs that had been
amassed to this point by continuing partners, it's all on their
ledger and they either try to get it back or not get it back,
depending on how successful they are with this whole project. "It
seems like discussions with withdrawn partners and the still in
partners is their deal, not ours."
CHAIRMAN TORGERSON said he didn't disagree, but they have heard
testimony from different sources that come up with the $4 billion
number and he is trying to give the committee's position on it.
As I was going from office to office back in Washington
D.C., somebody has done a damn good job of telling
everybody that there's a $4 billion bill hanging over
Foothills' head and they're very familiar with that. I
advised Foothills of that and they're doing kind of a
lousy job of telling people back in D.C. that this is not
true. They tell us it's not true, but the people that are
pushing the buttons think it is true. I think we need to
make a position on this that since we've already adopted
the framework of ANGTA, this is one of the problems and
we need to recommend that it go away.
3:00 p.m. - 3:04 p.m. BREAK
REPRESENTATIVE DAVIES moved to amend ANGTA 5 to read the same up
through "legislation that limits" and insert "tariff charges for
prior work to compensation for work done that does not have to be
duplicated and which is deemed appropriate to the current
transportation system."
CHAIRMAN TORGERSON said the intent is to allow expenses to be
carried forward that are fair and do not have to be duplicated. He
used the example of an EIS statement that was already half done. If
money was spent on it, that would be a legitimate expense to add to
the tariff.
CHAIRMAN TORGERSON asked if there was any further discussion on the
amendment to ANGTA 5. There were no objections and it was adopted.
3:07 p.m.
CHAIRMAN TORGERSON asked if there was further discussion on ANGTA 5
as amended. There was no further objection or discussion and it was
adopted.
CHAIRMAN TORGERSON said that access issues 1 - 4 were up for
consideration. They were all called "A" for access.
REPRESENTATIVE GREEN moved to adopt A1.
CHAIRMAN TORGERSON explained it requests that Congress pass
legislation to assure that Alaska has fair and reasonable access to
gas produced from the state and to create a joint board consisting
of the Federal Energy Regulatory Commission (FERC) and the
Regulatory Commission of Alaska (RCA) to determine instate access
and tariffs under the Natural Gas Act.
He said the justification was given to them by Ms. Thompson of the
RCA and says unlike the Trans-Alaska Transportation System for oil,
the Natural Gas Act does not provide for the Regulatory Commission
of Alaska to set rates for gas used in Alaska. Although Section
13(b) of ANGTA provides that the state is authorized to ship its
royalty gas on the approved system for use within Alaska and to
withdraw such gas from the interstate market for use within Alaska,
it does not deal specifically with how Alaska delivery points along
the line will be approved. Access to gas is necessary for social
and economic development of Alaska. The Alaska Regulatory
Commission should be part of a team that determines how intra-state
access and rates are determined.
CHAIRMAN TORGERSON said Ms. Thompson recommended that the team
could make recommendations back to FERC. He was not sure they
needed that in the language.
REPRESENTATIVE DAVIES moved to add "to make recommendations back to
FERC." So it would read:
…requests that Congress pass legislation to assure that
Alaska has fair and reasonable access to gas produced
from the state and to create a joint board consisting of
Federal Energy Regulatory Commission (FERC) and the
Regulatory Commission of Alaska (RCA) to determine
instate access and tariffs under the Natural Gas Act, to
make recommendations back to FERC.
REPRESENTATIVE PORTER commented, "When you say create a joint board
consisting of FERC and the Regulatory Commission of Alaska to
determine instate access, would you want to then say 'to recommend
instate access'?
CHAIRMAN TORGERSON said that was right. So they have to delete
"determine" and insert "recommend".
REPRESENTATIVE GREEN withdrew Amendment 1.
REPRESENTATIVE PORTER moved Amendment 2 to A1, which on line 3
deletes "from" and inserts "within" and on line 5, delete
"determine" and insert "recommend". There were no objections and it
was adopted.
REPRESENTATIVE DAVIES said he didn't think it was the Chair's
intent on line 4 to have the board consist of the entire FERC and
RCA. He moved to delete "consisting of" and insert "appointed
from". So, it would read, "members appointed from". There were no
objections and Amendment 3 to A1 was adopted.
REPRESENTATIVE GREEN asked if our RCA wanted FERC to be involved in
establishing instate tariffs.
REPRESENTATIVE PORTER suggested "access and tariffs under the
Natural Gas Act that affect the State of Alaska."
CHAIRMAN TORGERSON said he thought that was very broad language
that might "get us a seat at the table."
REPRESENTATIVE PORTER moved to insert "that affect the State of
Alaska." after "access and tariffs". There were no objections to
Amendment 4 to A1 and it was adopted.
REPRESENTATIVE PORTER moved to adopt A1 as amended. There were no
objections and it was so ordered.
It read:
The Joint Committee on Natural Gas Pipelines respectfully
requests that Congress pass legislation to assure that
Alaska have fair and reasonable access to gas produced
within the State and to create a joint board consisting
of members appointed from the Federal Energy and
Regulatory Commission and the Regulatory Commission of
Alaska to recommend access and tariffs that affect the
state of Alaska.
TAPE 01-20, SIDE A
3:16 p.m.
CHAIRMAN TORGERSON said they had decided not to offer A2 and that
A3 was up for consideration.
REPRESENTATIVE GREEN moved to adopt A3.
CHAIRMAN TORGERSON explained that A3 requests that the formula be
developed that would allow for the setting of different tariff
rates for natural gas distribution points along the route (Hubs).
He explained that the justification is Alaska studied different
proposals for the use of natural gas within the state including
several proposals for LNG facilities and petrochemcial plants,
several GTL plants and instate usage by communities. It is
important to be able to set tariffs at different rates to allow
these take off points. "This is what I was thinking came close to
our discussion before about whether we allow compressor stations
and everything else. I don't know if we need to get into that level
of detail, but certainly we need to if we take off from Fairbanks,
we want to have a price in Fairbanks and if there's one in
Glennallen or Big Delta, maybe there should be a corresponding
price.
CHAIRMAN TORGERSON asked if there were any objections to adopting
A3. There were no objections and A3 was adopted.
CHAIRMAN TORGERSON announced A4 to be up for consideration.
REPRESENTATIVE GREEN moved to adopt A4.
CHAIRMAN TORGERSON explained that this is a request that Congress
pass legislation to insure that producers who do not have an
ownership interest in the pipeline have fair and reasonable access
to space on the pipeline and the ability to obtain expansion of the
pipeline.
The justification is ANGTA originally precluded the Producers from
participating in the ownership of the gas pipeline. In 1981, a
waiver was sought and obtained by President Reagan to permit the
Producers to have an ownership share in the pipeline. Their
participation, however, had to be approved by the FERC and could be
approved only after consideration of the advice from the Attorney
General and upon a finding by FERC that the participation would not
(a) be inconsistent with the antitrust laws or (b) in and of itself
create restrictions on access to the transportation system for non-
owner shippers or restrictions on capacity expansion.
Alaska has much more gas than that contained in known fields.
Currently, companies are considering exploring for such gas and if
discoveries are made, that gas will need to have access to the
pipeline on fair and reasonable terms. If significant discoveries
are made after the initial capacity is filled, the pipeline will
need to be expanded and any expansion request needs to be
determined on fair and reasonable terms. Accordingly, the law must
be clear that the FERC has the authority to make such
determinations.
3:20 p.m.
REPRESENTATIVE DAVIES moved on line 4 after "obtain" to insert
"capacity". There were no objections and Amendment 1 was adopted.
CHAIRMAN TORGERSON asked if there were any objections to adopting
A4 as amended. There were no objections and A4 amended was adopted.
CHAIRMAN TORGERSON explained that the next two amendments involved
local hire, AH1 and AH2. He explained that they request Alaska hire
and use of Alaska businesses.
3:26:44 p.m.
REPRESENTATIVE DAVIES said the only way to meet the interstate
commerce test and to provide for Alaska hire is through project
labor agreements.
CHAIRMAN TORGERSON said this is a constitutional question.
REPRESENTATIVE DAVIES said he thought it was important to go on
record in support of that and moved to delete "for Alaska hire" and
insert "project labor agreements."
CHAIRMAN TORGERSON said the producers testified this morning that
they were going to have labor agreements anyhow. He asked if there
was any further discussion on AH1.
REPRESENTATIVE OGAN objected saying that the legislature is
mandating a route and they should keep other mandates at a minimum.
The producers said they were going to hire union people and he
thought that, "every able bodied Alaskan who was sober in the
morning could get work." He didn't think this was necessary.
REPRESENTATIVE DAVIES offered the amendment with the "project labor
agreements" language.
CHAIRMAN TORGERSON asked for a roll call. SENATORS OLSON, KELLY AND
TORGERSON and REPRESENTATIVES DAVIES, PORTER, voted yeah;
REPRESENTATIVES CHENAULT, FATE, OGAN, GREEN voted nay; and AH1 as
amended was adopted as follows:
The Joint Committee on Natural Gas Pipelines respectfully
requests Congress to approve a provision for project
labor agreements.
CHAIRMAN TORGERSON announced AH2 to be up for consideration. It
requests Congress to approve a preference for Alaskan businesses
for the construction and maintenance of a natural gas pipeline. He
said there was discussion on whether it was constitutional, but
they want to see Alaskan businesses have first crack at supplying
whatever is needed.
REPRESENTATIVE GREEN moved to adopt AH2.
REPRESENTATIVE PORTER suggested inserting "qualified" before
"Alaskan businesses". There were no objections and Amendment 1 to
AH2 was adopted.
REPRESENTATIVE GREEN said he thought this amendment was more
palatable, because of using the word "preference" instead of
"provision for".
REPRESENTATIVE OGAN said he was wondering what kind of preference
they were talking about.
CHAIRMAN TORGERSON responded, "If you're asking me, I would have
the steel mills built here where everything had to be made in
Alaska."
REPRESENTATIVE FATE said if it opens up a discussion on
constitutional issues, "That opens up Pandora's box."
REPRESENTATIVE OGAN agreed with Representative Fate. He thought
there were ways to deal with it instate and they had already had
some success negotiating with producers at Northstar and others.
CHAIRMAN TORGERSON asked if there was further discussion on AH2.
There being none, he asked for a roll call: SENATORS KELLY, OLSON
and TORGERSON and REPRESENTATIVE DAVIES, CHENAULT, PORTER and GREEN
voted yeah; REPRESENTATIVES FATE, OGAN; and AH2 as amended was
adopted.
3:38 - 3:41 p.m. - BREAK
CHAIRMAN TORGERSON announced that they had two taxation proposals
before them for consideration, T1 and T2.
REPRESENTATIVE GREEN moved to insert "from" after "imports" on T1.
CHAIRMAN TORGERSON said it now read: "Respectfully requests that
Congress pass legislation that prohibits tax incentives for LNG
imports from outside of North America."
He explained the justification was that:
The President and Congress have recommended a variety of
incentives as part of a national energy policy. Alaska
natural gas is in competition with LNG imported from
foreign sources to supply gas to the Lower 48 states. It
is the policy of the United States to reduce dependence
on foreign energy sources. Accordingly, Congress should
not pass any law that gives tax incentives to facilitate
importing LNG from sources outside North America. Rather,
Congress should enact incentives that benefit production
from the frontier areas of the United States, including
Alaska. Otherwise, United States gas in frontier areas
may be stranded.
He said that right now the committee is only recommending
accelerated depreciation; that would not apply to LNG import
facilities that are built to bring in gas that competes with gas
sources within North America. "We kept that particularly broad
because we didn't want it to apply to Canada which supplies us now
with about 20 percent of our natural gas or something like that - a
large volume. Possibly, Mexico may come on line.
He didn't think it was fair to give incentives to our competition
that would be equal to product that is available here in Alaska.
REPRESENTATIVE PORTER suggested amending the amendment. "Imports
outside" leaves the possibility for intermediate [indisc.]. He
thought they might replace "imports" with "produced".
CHAIRMAN TORGERSON said that Amendment 1 would delete "imports" and
insert "sources" after "from". There were no objections and
Amendment 1 was adopted. It now read:
The Joint Committee on Natural Gas Pipelines respectfully
requests that Congress pass legislation that prohibits
tax incentives fro LNG from sources outside of North
America.
CHAIRMAN TORGERSON asked if there was any discussion on Amendment
1.
REPRESENTATIVE OGAN asked if there was any kind of North American
free trade agreement.
CHAIRMAN TORGERSON responded that this was more of a policy and
that:
The same people who are producing our gas are going
around the world finding other sources cheaper and
producing that first and we're giving them incentives to
beat our own gas out of the market and I don't think it's
right.
There was no further discussion and without objection Amendment T1
as amended was adopted.
CHAIRMAN TORGERSON announced T2 to be up for consideration.
REPRESENTATIVE GREEN moved to adopt T2.
CHAIRMAN TORGERSON said that T2, "…requests that Congress pass
legislation providing a tax incentive that allows for an
accelerated depreciation schedule of seven years for Alaska natural
gas brought to United State markets."
REPRESENTATIVE DAVIES asked what impact that would have on tariffs.
CHAIRMAN TORGERSON said it would let them write it off quicker and
that it was consistent with what had already passed the House of
Representatives.
MR. MICHAEL HURLEY, Alaska Gas Producers' Pipeline Team, explained:
The way that T2 is worded - if you're going to change
accelerated depreciation, that is a federal tax statute
and relates only to your taxes. If you wanted to clarify
it, because normally what happens, just as background,
you always end up with several depreciation schedules;
one you use for your SEC books, because they have certain
requirements; one you use for the federal tax man,
because he has different requirements, which may or may
not be accelerated. The FERC actually makes you keep a
separate set of books that are tariff books that have a
different set of depreciation schedules. So, the FERC
role as part of their oversight of tariffs, works through
a depreciation schedule that they will allow. You could
clarify this by simply saying, "accelerated depreciation
schedule for tax purposes" and that would alleviate any
concern that it would change the tariff in any way shape
or form.
CHAIRMAN TORGERSON said there was an amendment for T2 to insert
"for tax purposes" after "schedule".
CHAIRMAN TORGERSON asked if there were any objections to Amendment
1. There were no objections and it was adopted.
REPRESENTATIVE DAVIES asked why they were adopting seven years.
CHAIRMAN TORGERSON replied, "They asked for it and it's already in
the energy bill."
REPRESENTATIVE OGAN asked how this would affect local government
taxing them. This is an issue in Valdez where they're getting less
and less local revenues.
REPRESENTATIVE DAVIES moved to insert "federal" in front of "tax
purposes". There were no objections and Amendment 2 to T2 was
adopted.
CHAIRMAN TORGERSON asked if there were any objections to adopting
T2 as amended. There were no objections and T2 was adopted as
amended.
CHAIRMAN TORGERSON said that was all the legislation he had
prepared to consider.
REPRESENTATIVE OGAN said, "For the record, my vote on Alaska hire
in no way reflected my desire that Alaskans not be hired. I think I
made it pretty clear that I thought the state would be a little
more effective without it."
CHAIRMAN TORGERSON announced the committee would go into executive
session for purposes of discussing strategies in dealing with
legislation from the governor and the federal legislation.
4:00 p.m.
REPRESENTATIVE GREEN moved for the committee to go into executive
session. There were no objections and they recessed.
CHAIRMAN TORGERSON called the meeting back to order at 4:43 p.m.
REPRESENTATIVE GREEN moved to end the executive session. There were
no objections and it was so ordered.
CHAIRMAN TORGERSON adjourned the meeting at 4:45 p.m.
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