Legislature(2001 - 2002)
02/15/2002 03:35 PM Senate NGP
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
ALASKA LEGISLATURE
JOINT COMMITTEE ON NATURAL GAS PIPELINES
February 15, 2002
3:35 p.m.
SENATE MEMBERS PRESENT
Senator John Torgerson, Chair
SENATE MEMBERS ABSENT
Senator Rick Halford
Senator Pete Kelly
Senator Johnny Ellis
Senator Don Olson, Alternate
HOUSE MEMBERS PRESENT
Representative Joe Green, Vice Chair
Representative Brian Porter
HOUSE MEMBERS ABSENT
Representative Scott Ogan
Representative John Davies
Representative Hugh Fate, Alternate
Representative Reggie Joule, Alternate
Representative Mike Chenault, Alternate
COMMITTEE CALENDAR
A resolution urging the President of the United States, the United
States Congress, and appropriate federal officials to support the
construction and operation of the Alaska Highway Natural Gas
Pipeline route.
WITNESS REGISTER
Mr. Patrick Coughlin
Consultant to the Senate Resources Committee
Alaska State Capitol
Juneau AK 99811
Ms. Karol Newman
Hogan & Hartson L.L.P.
Columbia Square
555 13th Street N.W.
Washington D.C. 22004-1109
ACTION NARRATIVE
TAPE 02-4, SIDE A
Number 001
CHAIRMAN JOHN TORGERSON called the Joint Natural Gas Pipelines
Committee meeting to order at 3:35 p.m. and said the committee
would work on the proposed Senate Joint Resolution. He said at 4:00
the committee's attorney would be calling in to discuss issues in
the federal legislation. The intent is to have this resolution be
introduced by the Senate Resources Committee at the request of this
committee since it doesn't have the legislative powers per se. He
said they hadn't officially adopted any resolutions to support any
positions, but the committee adopted 12 points to take to Congress
on different amendments it wants to see in the gas line act.
REPRESENTATIVE GREEN asked if they knew for sure that this is the
largest known natural gas discovery referring to line 5. He was
thinking of the Gulf Coast.
CHAIRMAN TORGERSON said they were okay on that one.
REPRESENTATIVE GREEN asked if the wording on page 2, line 8 -
"including the losses of tens of millions of United States jobs;
and" was correct.
CHAIRMAN TORGERSON said that was taken directly out of the Energy
bill. "A lot of it has to do with the recession and the California
problems and all the other things."
REPRESENTATIVE GREEN asked if they should delete "sources" and
insert "amounts" on page 2, line 9 where it says, "the United
States imports significant amounts of LNG,".
CHAIRMAN TORGERSON said they would take that as amendment 1.
REPRESENTATIVE PORTER moved amendment 1. There were no objections
and amendment 1 was adopted.
REPRESENTATIVE GREEN said the next proposed amendment is on page 2,
line 12 and would delete "natural gas" and leave ANS.
REPRESENTATIVE PORTER moved amendment 2. There were no objections
and amendment 2 was adopted.
REPRESENTATIVE GREEN said on page 2, line 18 there is a redundancy
"via a pipeline" since they are talking about pipeline routes.
REPRESENTATIVE PORTER moved amendment 3. There were no objections
and amendment 3 was adopted.
REPRESENTATIVE GREEN said the next amendment was a concept that
affected the 'WHEREAS' clause on page 3, lines 21 and 26. He is
concerned that they are talking about a petrochemical extraction
and further down they talk about LNG, but there isn't any mention
of gas to liquids (GTL). He wanted to know if that was left out on
purpose.
REPRESENTATIVE PORTER said he was under the impression that GTLs
would go down the existing TAPS line.
CHAIRMAN TORGERSON said it may and he didn't think it would be
wrong to add that.
REPRESENTATIVE GREEN said it could also be done at Kenai.
REPRESENTATIVE PORTER moved on page 3, line 26 to insert "GTL"
after "including". There were no objections and amendment 4 was
adopted.
REPRESENTATIVE PORTER noted that there was a list of advantages on
page 4, line 5, and benefits to the state from the sale of ANS gas,
no matter which route was used.
REPRESENTATIVE FATE moved amendment 5, which inserts "little to" in
front of "none". There were no objections and amendment 5 was
adopted.
REPRESENTATIVE PORTER referred to amendment 3 on page 5, which
provides for reaffirmation of the validity of ANGTS and the
modernization of the Act as necessary. He asked if they want to
leave ANGTS in place as it relates to the pipeline companies to the
exclusion of anybody else being able to apply or with the addition
of other people being able to apply.
CHAIRMAN TORGERSON said their intent was if they are going to
support the producers' legislation, to allow them to file under the
Natural Gas Act. The legislature would authorize ANGTA to be
upgraded to keep that permit.
REPRESENTATIVE PORTER said he didn't think that was correctly
expressed.
MR. PATRICK COUGHLIN, consultant to the Senate Resources Committee,
said that was the intent as existed and that S 1766 did not have
anything about ANGTA in it. The purpose of this amendment
recommending that the Joint Committee adopt an amendment was to
keep the ANGTA people on par with where they stood and to recognize
that the legislation, itself, already allowed others to apply.
MR. COUGHLIN explained that most people believed that under ANGTA
no one else could apply at least until the ANGTS was built. He
explained:
One of the major purposes of the producers' legislation
was to enable them to file an application under the NGA.
As originally drafted by the Senate majority leadership,
Senator Daschle, his version of the bill, which was S
1766, made no mention whatsoever of ANGTA. We were simply
proposing that we stay consistent with recommendations
that this committee adopted in October to reaffirm that
ANGTA was still a valid law, given that the Senate was
introducing this enabling legislation and the Joint
Committee, the last time they met, they thought that
ANGTA should be capable of being modernized... We are
simply going to request that those types of provisions
were added to S 1766. Now what's happened is in the
current version of the federal bill those basic
provisions have already been added [the current version
is S 517]…
CHAIRMAN TORGERSON commented that he thought the current version
has been changed to [S] 1948.
REPRESENTATIVE PORTER asked if the current bill still has ANGTA in
place as originally written.
CHAIRMAN TORGERSON said it is in section 701 in the new legislation
on page 104, line 11.
MR. COUGHLIN said that is what they want to see in the bill.
CHAIRMAN TORGERSON noted that the pipeline people have also wanted
ANGTA to be upgraded.
There has never been a discussion about repealing ANGTA.
It was never in anybody's mind... They are not opposing
the producers' legislation. That is true, but they had
asked for Congress to upgrade certain provisions of ANGTA
to modernize it.
MR. COUGHLIN pointed out that language was on page 111, section
711, in the current version of the bill.
CHAIRMAN TORGERSON said:
This is a moving target. There is no doubt about that.
These are our main points that we had made. Basically,
what we're saying is we're okay with the producers'
legislation as long as these things are there. The intent
of number 3 was to keep a level playing field so that if
we're going to allow one permit and new provisions for
exploration NGA for expedited permitting and other
things, but didn't want to have a technicality, because
the language was old and wouldn't apply, it wouldn't have
authority to upgrade that.
REPRESENTATIVE GREEN moved to adopt the wording in the resolution.
There were no objections and it was so ordered.
REPRESENTATIVE GREEN moved that the Senate Resources Committee
introduce this resolution. There were no objections and it was so
ordered.
CHAIRMAN TORGERSON advised Representative Porter that it wouldn't
hurt to have a companion bill in the House on this issue.
4:00 p.m.
CHAIRMAN TORGERSON said he put together several questions
(attachment A) when they were looking for an attorney to represent
the committee's concerns in Washington D.C. The answers to those
questions were part of the selection process. Mrs. Karol Lyn
Newman, partner with Hogan & Hartson, answered those questions very
well.
He said there had been a lot of discussion on whether FERC had the
authority to order expansion and access questions for explorers
other than the producers. The producers were not happy with the
committee's language on access. He said there is rumored to be a
couple of hundred amendments to the Alaska portion of the Energy
bill. He was very impressed with Mrs. Newman and said, "She has
great knowledge of actions that go before FERC and has been
practicing before FERC for a long time."
CHAIRMAN TORGERSON asked her to review Attachment A and the
original open season.
MS. NEWMAN said:
In the context of holding open seasons before FERC, the
objective that FERC has always articulated is to insure
that all potential shippers have an equal opportunity to
obtain access to a pipeline which is proposed to be
constructed on a fair and equal basis in a bidding
process and the bidding process should be fair. That's
where it becomes difficult and the reason it becomes
difficult is because FERC at this time does not have any
regulations, which require or mandate that an open season
be conducted in any particular fashion. As a result, they
are conducted as the pipeline chooses to conduct them -
usually through some form of advanced negotiations with
what I will [call] anchor shippers, and terms and
conditions are discussed or in some cases worked out
through advanced proceeding agreements. Then the bidding
papers are put together. So, the open season is
structured in a way which, by definition, is going to
favor those who have participated in the process and
explained to the pipeline what they need to see in order
to ship gas on the line. Then, of course, when the open
season is held, other bidders who have never seen the
proposal or have not [had] a chance to discuss their
concerns are in fact at a real disadvantage. In fact,
they may already be shut out from a significant portion
of the line, because FERC has not precluded
presubscription capacity.
The object is to try to structure a process, which will
make the open season, especially on a line such as one
proposed in Alaska where you know there is not going to
be more than one. There's not going to be two in the
foreseeable future. If there's going to be one built,
there needs to be some special rules, at least, for that
particular line. Otherwise the process will be totally
controlled by the three large producers in the area. And
the initial capacity, as well as expansion capacity,
could easily be contracted for before anyone else
including the state for its royalty gas to get in the
line, except perhaps under some onerous conditions. The
reason I say that is because it's not just a bidding
process, but the process of developing the tariff, the
terms and conditions of service are all discussed in
advance with the anchor shippers to make sure that makes
imminently good sense. From the perspective of people who
need access to the pipeline, it doesn't work.
The second part of the problem is timing. FERC does not
have any regulations in effect right now on open seasons
at all and, therefore, doesn't have any regulations
obviously on timing. Open seasons are conducted in a
variety of fashions and in a variety of times depending
on the project. Some people will actually go forward and
set an open season to get a sense of who's interested in
participating in shipping on the line. Others will
already have their deal cut. So some people will hold an
open season well before the application is filed at FERC.
Others will hold it within a couple of weeks of filing
the application. Others will hold it even later than
that. So, there's no requirement as to when you must hold
an open season, especially in terms of an in-service
date. It is really unusual for somebody to hold an open
season on a pipeline when the in service date is many,
many years down the road. We're usually looking at six
months to one year from the date of filing an application
to somebody saying I have an in service date of 18 months
from now. Clearly, on Alaska's pipeline there's more lead
time required that just plays into the whole question of
when you hold that open season. Although in the Alaska
Natural Gas Transportation Act (ANGTA) there was a
requirement that applications explain the dates for
expansion and how they would do an expansion and what it
would look like. That requirement is not a part of any
open season under the NGA. Open seasons may or may not
talk about expansions. But frequently, at least in the
Lower 48, they talk about expansion, they plan phases of
projects - phase one, phase two, and phase three. People
will actually sign up and bid on expansion capacity
that's coming down the road in five, six or seven years.
It's not unheard of. They do it that way…
As a practical matter, that would need to be part of
regulations governing an open season. If on the other
hand, as legislators, surely you understand this and you
would want your regulators to understand this, if you
were faced with a pipeline of finite capacity - a 52 inch
- and current technology says you can't make it any
bigger no matter what you do and someone were to conclude
it's not feasible to lift the line for environmental
reasons or others, which would need to be looked into. As
a regulator or as legislators you would want to look at
this and say what do I do with this finite capacity? I've
got three major shippers; they've got X amount and I've
got other people out there. What the state is telling us
is that there's going to be a second line some year some
day when it can be financed, but in the interim, what do
we do? Do we shut down exploration opportunities in the
state, because nobody can plan on having access or do it
as a regulator or a legislator build something into the
process, which says we want to take a look at this. We're
not going to predetermine this, but we want to make sure
we have the ability to take a look at it. So, what you
may have seen in the draft legislation we've been looking
at is something that gives the regulator the ability to
talk about the timing and the terms and conditions of an
open season, so it's fair…not giving any advantage. When
you're talking about bidding, that's bid rigging almost….
The next question is well what do I do. Well, I don't
know whether you're going to have a finite capacity. It's
a matter of technology and environmental concerns
primarily, available right-of-way, etc., but if you
assume there is and it's 30 years from now before another
line will get built of any significance, then somebody
needs to talk about capacity allocation. Right now the
way FERC's statutes are structured, it's not that you
couldn't do it. It's just a little more difficult. FERC
has not yet embarked on putting together any kind of a
ruling for pipelines in general or for this pipeline. So,
one of the things we think is rather important is the
need to have some controls set in place governing an open
season and trust the regulator, unless the legislature
will do it. I don't think the U.S. Congress will be that
specific in establishing procedures for an open season,
although they could be. So, you want to at least leave it
to a regulator where you have input. You have an
opportunity to tell them what you think needs to be in a
rule and give them the impetus to write the rule.
When I look at open seasons, FERC has gone a long way in
general, but not far enough for a line like this and
maybe not far enough even in the Lower 48. This would be
a new concept for them to actually sit down and write
rules and we think it's important.
CHAIRMAN TORGERSON asked if FERC could delay the open season.
MS. NEWMAN said they have the regulatory authority to do it, but
it's not likely they will do it unless someone complains or
petitions or does something. He stated, "If nobody asks them for
it, they will not do it on their own initiative."
CHAIRMAN TORGERSON asked if we aren't successful in convincing FERC
to delay it and the producers go forward, does the state have any
ability to challenge the open season in court to block it.
MS. NEWMAN replied that they can challenge it in FERC by filing a
complaint saying it's unfairly conducted. This has happened in a
few cases and FERC has required that the open season had to be
redone. It's a tougher road to go than to have rules up front. It
would have to be challenged at FERC, not at court.
CHAIRMAN TORGERSON said since expansion is tied into an open
season, he referred her to an opinion, FERC Order 637, saying the
producers claim that FERC has the authority to demand the expansion
of a line and he asked if she thought FERC currently has the
authority to demand expansion and how does their Order 637 apply to
us.
MS. NEWMAN replied:
There is no question in my mind that no lawyer that
practices before FERC would give a real legal opinion
that FERC has the authority to order an expansion, for it
clearly does not. That lawyer that wrote to you by, I
believe, Exxon's in-house people, doesn't say they
believe FERC has the authority. They say, 'FERC says they
have the authority.' That's a very different thing. There
are two problems with that. Number one is Order 637 was
not in any sense articulating a rule that said FERC has
the authority to order an expansion and will do so in an
appropriate case. What it said was there are certain
instances when we look at discrimination in terms of
access, that we can potentially require pipelines to
expand if, in fact, we can make appropriate
determination.
What that meant [Order 637], we were talking about
situations in large part where pipelines made
commitments. That was how the gas act is structured; it's
built on private contracts. It is inherently a regulatory
scheme that is superimposed on private contracts. What
happens is you go out and you contract. Well, some
pipelines have gone out and contracted for capacity well
in excess of what they have the ability to provide. I
have come back to rue a couple of circumstances and one
is the El Paso [indisc.] in Arizona. They have situations
on their hands now and they've been hearing about them
before 637 issues, where it's clear that there had been
over commitments of capacity. FERC was simply saying, 'In
the appropriate circumstance, we may be able to do that
as a remedy - as a remedy for if you sign contracts that
said you could transport 100,000 decatherms a day - fine
- now you have to live up to your commitment. We're going
to make you honor your contracts.'
But if a pipeline with a contract for more capacity than
it has there is nothing in any statute that FERC derives
statutory authority from which would allow the FERC to
order a main line expansion. That has been decided in
cases for years and it has been articulated by FERC,
itself. So, I would challenge whoever wrote that letter,
which I read, and the letter does not say FERC has the
authority. It says, '636 says FERC says it has the
authority.' It is taking 636 out of context and more than
that, it is not an opinion of counsel, because I would
venture to say you would not get that opinion.
My guess is that the first people who would challenge it
if FERC were to order it, would be the very producers who
are telling you right now that FERC has the authority.
They would be the first one to file in the United States
Court of Appeals challenging FERC's statutory authority.
I would not take any comfort from those statements about
637 to suggest that FERC had any authority to order
expansions. It does not.
REPRESENTATIVE GREEN said they have maintained steadfastly that
there has to be access upon expansion and asked what FERC's history
has been as far as determining how much of the future additional
capacity would be given to certain companies, if the companies are
currently at capacity and have a tremendous amount of additional
reserve. He asked if there would be an allocation based on an
ability to provide gas or would it be a first come first served or
would there be a preference for other people without specificity in
this legislation.
MS. NEWMAN replied that FERC has not been confronted with the
situation in Alaska.
That is because in the Lower 48 and even on the
continental shelf there are multiple lines built. The
only issue is whether somebody actually has capacity and
whether they will be let in. Because FERC doesn't have
the authority to order an expansion, it becomes a
question of whether they can prorate within the line.
TAPE 02-4, SIDE B
MS. NEWMAN said that FERC had been given some authority to prorate
capacity and to require expansions to meet needs. She added:
Congress recognized it there, but it's not in the general
Natural Gas Act. So, how FERC would address a capacity
shortage issue would be addressed in terms of the
fairness of the vague process. In other words, it could
be structured so it's not to prefer. Other than that,
you're going to need legislation to give the FERC
specific authority to act in a certain way. If you want,
for example, non-Prudhoe Bay, Pt. Thompson producers to
have first call on expansion capacity, that's going to
have to be done by legislation because that is not going
to be something FERC on its own could implement right
now.
REPRESENTATIVE PORTER said that begs the question of doing
legislation before or after the original pipeline operation.
MS. NEWMAN replied, "You need it now. Once it's committed and
locked up, there's nothing can stop it after that. You can't undo
it."
CHAIRMAN TORGERSON said they would discuss the bill now and asked
her to explain page 3, (4) where it starts out to reaffirm the
intent of the Congress that ANGTA is the right statute.
MS. NEWMAN replied that this is a question entirely of how you want
to move forward.
We have in here a provision that says Congress intends
that the ANGTA - and the words that are in here say that
ANGTA - now the words that are in here say 'as
supplemented by this subtitle remains in full force and
effect with respect to any transportation system.' That's
important. Basically, ANGTA is going to control, in our
view, over competing applications if we're talking about
a complete final permanent application being placed
before FERC for the existing ANGTS versus a note or
application, which might be filed by someone else under
the NGA. As a result, what this does is say we're
reaffirming ANGTA. ANGTA remains in full force and
effect, i.e., it carries a priority it always carried.
That remains in place. Primarily I think that is to
ensure that the routing, which was designated in ANGTA,
stays intact. You don't have to do this, but it was my
understanding that that's what we wanted to do.
CHAIRMAN TORGERSON said he didn't think she had seen the new
federal legislation that was introduced, S 1948.
MS. NEWMAN said she couldn't get it through her e-mail.
CHAIRMAN TORGERSON related that it said the producers, the pipeline
companies, and the state have a lot of amendments that would make
it longer.
CHAIRMAN TORGERSON asked her to explain the intent on page 6 (e).
MS. NEWMAN responded that even under ANGTA there is no assurance
that the state's royalty gas will move.
ANGTA only deals with the ability to remove gas from
interstate commerce and allow it to be used in the state
as it was moving through an interstate pipeline. That is
something that the law is different now. That is
something that had to be done in 1976 in order to allow
the state to use its own royalty gas in the state. Back
then, pipelines bought all the gas and shipped it. The
question was making sure it could get off in Alaska. The
problem now is somewhat different and is more pointed and
goes hand-in-hand with this issue of open access and the
bidding process.
The way pipeline tariffs are factored, shippers are now
dealt with in FERC, is that pipelines are allowed to
negotiate with shippers. That once you participate in a
bidding process, it becomes sort of a negotiated
agreement that you have. It's supposed to be just a
negotiated rate, but it usually manages to get well
beyond that, although it's being challenged at FERC now
when people do that. There is a lot of room in there. The
only fall back is you have to have a recourse rate, which
any shipper will do based on the cost to serve the
tariff, which every shipper can get, if you can't
negotiate. The reality is I have never seen a recourse
rate that is anywhere near as good as a negotiated rate.
What happens is the person who has to rely on a recourse
rate even if you get capacity is going to be in a much
worse position than the guy who gets a negotiated rate.
You want to make sure that first of all you get capacity
and then about the terms and conditions of your surface
or structure. That's really how (e) and (f) work
together. But, (e) is in there because we thought the
state needed to make sure it had access for its royalty
gas and that would be a change from existing law.
CHAIRMAN TORGERSON asked her to comment on page 15 (a) and (b),
particularly as it relates to the BP lawsuit on the outer
continental shelf and the regs that FERC had.
MS. NEWMAN responded that she didn't know if any other producers
had joined in with Chevron and didn't want to comment. She said the
Outer Continental Shelf Lands Act (OCSLA) is the only existing
statute under which FERC has the authority to order an expansion
when it's needed. The Outer Continental Lands Act was debated in
Congress for many, many years before it ultimately was put into
some format that was useable in 1978 for the amendments. One of the
conditions in the OCSLA is that there is open nondiscriminatory
access. The question of jurisdiction was whether the Department of
Interior does things or FERC, but FERC was clearly put in charge of
ordering prorationing of capacity if it was necessary to enforce
the nondiscriminatory access provision. He continued:
FERC did nothing since 1978 with this statute. This past
year, this year, maybe it was 2001, FERC promulgated
brand new rules where they required the disclosure of
contracts that were in place between shippers and
pipelines on the Outer Continental Shelf under the OCSLA.
Its purported authority for doing this was its obligation
to ensure that there was open and nondiscriminatory
access. It said it needed information; it needed access
to these contracts. Producers Williams, Duke all
challenged the commission's authority to issue those
regulations on the grounds that Congress had not
specifically given them authority to issue rules and
regulations to implement the provisions and that what
Congress intended was that they had to adjudicate every
case - that they weren't entitled to promulgate rules to
require information to be filed. They actually won that
in the United States District Court. It made the appeal
in the Court of Appeals and we'll see what happens.
But I don't think people need to worry about that. The
most important thing is to put in legislation that the
agency that is implementing the statute has the authority
to write all the rules, regulations, issue all the orders
necessary and then you don't worry about it. It is not a
foregone conclusion that an agency has that authority if
it's not spelled out in a statute. So we put it in.
CHAIRMAN TORGERSON wanted to spend some time talking about
provisions governing open seasons and the access question where non
producers or explorers have some sort of level of comfort that if
they strike gas, they will be able to have access to the line to
move it down. It is important to Arctic Slope Regional Corporation,
Anadarko and Alberta Energy and to the state. Alaska would not be
able to have another lease sale unless they had a way of making
that happen. This is probably the most controversial part of the
bill. The producers have said basically that this is a deal killer.
The other side is saying that it has to be in there, because it
doesn't do the state any good unless they are guaranteed access to
the line in the future.
MS. NEWMAN said:
FERC currently has the authority to write rules; it just
hasn't done it and it's not going to do it unless
somebody asks it to do it. That can be either a private
party, the state or it could be Congress. A directive
from Congress that it shall write rules to govern this is
very, very important. Then it doesn't have an option. It
must embark on a rule making process to figure out how to
deal with this Alaska pipeline. So, that's the first
premise. You have to have a requirement that they write
the rule. We have put in here that they establish
procedures. Well, let me start with the first part of it,
which is in page 15, which is the requirement that they
file. Obviously, what you want is that the commission
promulgate regulations governing the timing, structure
and minimum criteria for the conduct of an open season.
That's a starting point that says let's get some basic
guidelines and rules down here. Let's figure out what
needs to be in the calculation of net present value. If
we're going to do this on a MTV basis, that's fine, but
let's know what the criteria are and let's talk about the
things that are going to create a disadvantage or an
advantage for some shippers. So, what you want to do is
get that process going where people have input in getting
the right rules out. But you need more than that.
You need the commission to then require that the open
season be filed with FERC. They are not now filed with
FERC. They are not even publicly available. They are
available if the pipeline chooses to send you a copy. And
they won't send it to anybody. If I called up and wanted
open seasons on something as an outside lawyer, they
would no more give it to me than the man in the moon. So,
you cannot just get copies of these things. Some people
put them out for bid, some don't. It depends on whether
they're running a rigged or a biased open season.
The fact that there have been ongoing negotiations, which
we know right now, we already know that there have been
ongoing negotiations with the three producers and the
pipeline sponsors. It's imperative that an open season
for an Alaska pipeline be filed 90 days before the
proposed date for the opening of the open season. That's
important because people need a chance to look at the
criteria for bidding and to raise objections that they
are discriminatory or preferential. It would be an early
shot out the door before people start signing contracts.
That's very important to allow that process to happen.
That doesn't stop the financing from going forward
because the financing is down the road; the pipeline
isn't going to be built for a long time and it's best if
these things are resolved up-front rather than to get
challenged later after the contracts are signed. So,
there are a lot of good reasons for doing this and I
think at the end you might get that if someone requires
FERC to promulgate regs.
The second part, which starts on page 16, line 4, says
that the commission shall establish procedures for
reviewing the terms and conditions. So, what you want is
for FERC to write some regulations saying this is how
we're going to go about it. These are procedures rules.
This isn't telling them what to do; this is telling FERC
to write some procedures. You're going to file in 90
days, now everybody is going to have so many days for
comment. We will look at it; we will do X, Y and Z. The
object, which is what's written in here, is to insure
that potential shippers, whether it's for initial or
expansion capacity, because as I mentioned before, they
do put an open season out for both, that they have a fair
and equal opportunity. The fair and equal is critical. As
I said, this is a bidding process. You don't want your
bids rigged. What you want is a fair and equal bidding
process - not undue preference. I've heard talk that,
'Let's use the Natural Gas Act standard of no undue
discrimination.' I don't really see how that can fit into
the equation when you're talking about a bidding process.
How can any discrimination or any preference be
permissible when you write a bid? It just can't be. If
you give somebody input to the bidding process, then
they're very key to win the bid. So, FERC needs to take a
look at this and say, 'Since we know that process has
already gone on, let's give everybody a chance to
scrutinize it and decide what's wrong with it and if you
have to open the bidding in a different fashion, then it
has to be opened in a different fashion. This allows that
process to take place before the bidding starts.
It's also an issue of timing. You can put in here when
you're trying to tell FERC what needs to be done, that
you need a phased process or there's to be no bidding for
phasing capacity until five years out from now or seven
years out from now. So, that's what's important and then
what we have after that is instructions saying after
you've reviewed these materials and engaged in whatever
process it is you determine you need to do, then if it is
important in the public interest that FERC decides that
they have to establish procedures to reallocate that
capacity or reserve capacity for expansion for others,
then FERC will have the authority to do that.
Articulating that is a lot better than just leaving it up
to chance that you could prevail in a Court of Appeals,
if you were able to convince FERC to do it. I'd really
rather see it in law - that says yes, you clearly do have
the authority to do it, because this is a one-time
pipeline, at least for the next 30 years. That's why this
is structured as it is.
REPRESENTATIVE GREEN said he is concerned if it's opened up to
competitive bid using the public interest criteria and he is
sitting on a large amount of gas that he could get into an expanded
line versus a smaller amount that has to come forth over some
terrain, the chances are he would be able to bid competitively
better than the people who have to come a longer way. The public
interest would be the purchasers down in the Lower 48 or the people
of Alaska, because it's to our advantage to get more fields
developed and start the exploration that's necessary We won't get
that unless there's some degree of reasonableness on those
investors who would be out exploring.
MS. NEWMAN asked if he is concerned about what the regulator can or
would do when faced with that.
REPRESENTATIVE GREEN responded yes.
MS. NEWMAN responded:
I think if you look at the very beginnings of the
proposed statute that we're looking at here - Section
702.2, which says, 'One of the purposes of this Act is to
insure access on an equal and non-discriminatory basis to
promote competition,' you would hopefully be able to
convince the regulator that putting total control in the
hands of those who have easy access is not the answer and
maybe you could convince them that they needed to clearly
reserve capacity But, I think absent legislation, and we
do have it in here now, absent a reservation of capacity
for a non-Prudhoe Bay producer - you're right. You may
have a very difficult time of it, but that's why one of
the indications in here that we would like Congress to
say is that one of the things we want you to look for is
whether or not you need to reserve capacity for
expansions for non-Prudhoe Bay and Pt. Thompson
producers. That's why that's in here... If you wanted, we
could make it more explicit.
CHAIRMAN TORGERSON said he had a hunch they would be dealing with
that section a lot and asked if a more controversial thing is the
words "reallocation of initial capacity".
MS. NEWMAN replied that capacity can be reallocated in a number of
ways. If they are looking at financing and have enough volume to
fill the pipe, it's not a financing issue. This is because people
who are doing the financing are looking at whether or not you've
got the volume. It doesn't matter who it comes from. He added:
So if producers are saying this will kill the pipeline,
all they're saying - it's not able to kill the pipe,
because if you reallocate capacity, that means there's
more volume than you have capacity for. If that's the
case, we don't have a financing problem. What we have is
a problem of the three producers who want to monopolize
the pipe not being given the permission to do so.
CHAIRMAN TORGERSON responded, "Or the fact that they are building
an overall business plan with so much for netback for the sale of
their product."
MS. NEWMAN responded:
That's right. That's dependent on their being in control
of this asset, whether they build it or whether they
don't, whether they are the ones that manage it or
somebody else is. I look at this - as I said in the paper
I gave to you before in answer to the question - I look
at this fundamentally as a question of whether or not, to
put it in very simple terms, these producers have the
capacity or the capability or the authority - whether
they can in fact just shut their gas in and say, 'Fine,
we just won't produce it.' If they can do that, then I
don't know how you can eliminate the control unless
something happens that takes that power away from them.
If they don't have that power, then they're bluffing.
CHAIRMAN TORGERSON asked Ms. Newman if she had concluding comments.
MS. NEWMAN responded, "Let's do our best and say our prayers and
work hard at this, because I think this is terribly important."
CHAIRMAN TORGERSON said the talks were going on with the producers
and Washington D.C. He thanked Ms. Newman and adjourned the meeting
at 4:50 p.m.
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