Legislature(2001 - 2002)

02/15/2002 03:35 PM NGP

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
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                                                            
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                                                            
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                                                            
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                                                                  
     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                                                            
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                                                            
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                                                            
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                                                                  
     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                                                                 
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                                                               
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.                                                                                                                    

Document Name Date/Time Subjects