HB 394-RCA REGULATE NATURAL GAS STORAGE FACILITY  3:42:29 PM CHAIR SUMNER announced that the final order of business would be HOUSE BILL NO. 394, "An Act relating to the Regulatory Commission of Alaska and regulation of the service of natural gas storage and liquefied natural gas import facilities; relating to records of the Regulatory Commission of Alaska; relating to rates established by the Regulatory Commission of Alaska; and providing for an effective date." 3:42:46 PM The committee took an at-ease from 3:42 p.m. to 3:51 p.m. 3:51:25 PM REPRESENTATIVE TOM MCKAY, Alaska State Legislature, on behalf of the House Resources Standing Committee, sponsor, read the sponsor statement for HB 394 [included in the committee packet], which read as follows [original punctuation provided]: HB 394 is aimed at enhancing the energy security of Southcentral Alaska by providing a clear regulatory framework for third-party natural gas storage. This bill was designed to establish a regulatory framework that not only encourages the expansion of natural gas and liquefied natural gas (LNG) storage facilities but also ensures these critical pieces of energy infrastructure operate efficiently and remain economically viable. HB 394 provides for the Regulatory Commission of Alaska (RCA) to have clear oversight authority over natural gas and LNG storage facilities, which will bring stability and predictability to the sector and make it more attractive to operators and investors. HB 394 defines principles for the determination of just and reasonable rates, ensuring that operation costs, tax incentives, and the fair market value of storage assets are all considered. This approach aims to foster fair pricing practices that benefit both consumers and businesses. This bill also introduces measures to protect sensitive financial information, mandating confidentiality for certain records. This move strikes a balance between protecting commercial sensitivities and fulfilling the need for regulatory transparency. Additionally, the bill recognizes the complexities of state and federal regulations by exempting LNG import facilities that are already regulated by the federal government from state oversight. HB 394 is a necessary piece of legislation if the state of Alaska wants to see third-party gas storage from the private sector. I urge my colleagues of the 33rd legislature to join me in supporting this bill which represents a decisive step towards reinforcing Southcentral Alaska's energy infrastructure and ensuring the well-being of our state. 3:55:30 PM TREVOR JEPSEN, Staff, Representative Tom McKay, on behalf of the bill sponsor, the House Resources Standing Committee, on which Representative McKay serves as chair, began a PowerPoint presentation, titled "HB 394 - RCA regulation of natural gas storage facilities." He drew attention to slide 2, which explained the changes proposed under HB 394 and intended benefits. He moved to slide 3, which displayed active gas storage facilities in Southcentral Alaska. 3:57:40 PM REPRESENTATIVE FIELDS asked for clarification as to the definition of the term "third party" in the context of slide 3. MR. JEPSEN replied that HB 394 would address gas storage issues for companies all throughout Southcentral Alaska. 3:58:50 PM MR. JEPSEN continued to slide 4, which explained the logistics and necessity of gas storage and gas storage facilities. He moved to slide 5, which displayed a list of agency roles that the Alaska Oil and Gas Conservation Commission (AOGCC), Department of Natural Resources (DNR), and Regulatory Commission of Alaska (RCA) all play in gas storage in Alaska. He concluded the presentation on slide 6, which provided an overview of HB 394 and its policies as they relate to gas storage. 4:02:17 PM REPRESENTATIVE FIELDS asked Mr. Sims about the fair market value language in HB 394. MR. JEPSEN explained that the language is to clarify to the private industry about fair market value and make companies aware that things are being considered other than just the point of sale price. REPRESENTATIVE FIELDS asked whether the price of gas has any impact on cost of storage. MR. JEPSEN answered that he believes that is so. 4:04:57 PM JOHN SIMS, President, Enstar Natural Gas, proffered that the challenge of gas pricing is determining when the price was set. He added that the fluctuation of gas prices makes for a challenge. REPRESENTATIVE FIELDS asked for information about cost of storage and further asked for a comparison about language of legislation with or without fair market value language. MR. SIMS replied that it would be difficult to compare such language and explained how the gas storage rate was first set. 4:08:04 PM REPRESENTATIVE CARRICK asked why HB 394 would make records confidential when companies can already request confidential records. MR. JEPSON replied that companies must make the prices confidential to attract business in Alaska. 4:09:10 PM ROBERT DOYLE, Chair, Regulatory Commission of Alaska, stated that the RCA is in support of HB 394 because it would convert a legacy field into a storage facility. REPRESENTATIVE CARRICK asked Mr. Doyle whether the current confidentiality process is sufficient. MR. DOYLE answered that the current system for confidentiality records is sufficient and is based off of a "mighty mite" standard that protects the confidentiality of records if there is any chance of a breach of confidentiality in the process of attaining said confidentiality. 4:12:05 PM REPRESENTATIVE SADDLER pointed to Section 4 of HB 394 and asked about the difference between a financial statement and a financial assurance statement. MR. DOYLE explained that it depends on how far a person wants to go into the finance records and directed his answer to Becki Alvey. 4:13:11 PM BECKI ALVEY, Advisory Section Manager, Regulatory Commission of Alaska, explained the differences between a financial statement and a financial assurance statement. In response to a follow-up question, she explained that a financial assurance agreement is the agreement that is obtained when a third party backs a financial investment of a company. REPRESENTATIVE SADDLER asked how far the confidentiality of records for companies would extend. MR. DOYLE said that the committee is talking about S- Corporations and would need to seek legal counsel to answer Representative Saddler's question. 4:16:09 PM REPRESENTATIVE MCKAY emphasized that Alaska is in need of additional gas storage beyond current capacity and explained that the confidentiality language is in the bill to retain access to current and future storage opportunities. 4:16:44 PM REPRESENTATIVE FIELDS asked Mr. Nottingham about confidentiality agreements between the State of Alaska and gas companies. 4:17:33 PM DEREK NOTTINGHAM, Director, Division of Oil & Gas, Department of Natural Resources, answered that the purpose of the confidentiality agreement is to show that the investing company has the financial backing to support its investment. He added that the Department of Natural Resources (DNR) is looking at making sure said company could not leave the state high and dry with old equipment and failed payments. REPRESENTATIVE FIELDS asked why there are two different confidentiality provisions under HB 394. MR. NOTTINGHAM explained that there are current statutes that protect the confidentiality of those records and explained how HB 394 would affect those statutes. REPRESENTATIVE FIELDS asked whether the language in HB 394 goes further than existing statute surrounding confidentiality. MR. NOTTINGHAM said he could not comment. 4:20:38 PM REPRESENTATIVE RUFFRIDGE asked the bill sponsor if there is enough storage during peak demand times in winter and asked how the proposed legislation would get the state access to more gas storage. REPRESENTATIVE MCKAY replied that the state currently has access to only one storage facility and added that the three Hillcorp fields are not available until the company agrees with the state. He reiterated that the goal of HB 394 is to prepare Alaska for a possible need to import gas in the future. REPRESENTATIVE RUFFRIDGE asked about repeal language in Section 5 of HB 394. 4:23:40 PM MR. JEPSEN responded that current gas storage and transfer action is regulated under Title 42 of Alaska Statute and the repeal language being questioned is merely conforming language. REPRESENTATIVE RUFFRIDGE clarified Mr. Jepson's answer and asked about language in Section 5 and Section 7 of the bill. MR. JEPSEN explained that Section 5 of HB 394 is referencing language in Chapter 6, Title 42 of Alaska Statute. REPRESENTATIVE RUFFRIDGE asked why the State of Alaska would make North Slope natural gas different from that of the other carriers. MR. JEPSEN deferred the question to Becki Alvey. 4:26:20 PM MS. ALVEY, in response to Representative Ruffridge, answered that it is not unusual to see a specific definition or statute relating to North Slope gas companies. 4:27:40 PM REPRESENTATIVE MCKAY clarified that HB 394 is only related to Cook Inlet gas companies, not North Slope companies. REPRESENTATIVE RUFFRIDGE remarked that it seems out of line to carve out a section of bill language for specific companies that would not be impacted by the proposed legislation. 4:29:41 PM MR. JEPSEN said that he would do more research to get a better answer to the committee. REPRESENTATIVE MCKAY explained that the state must regulate all gas pipelines, regardless of their length, especially assuming importation of LNG that could start in 2030. MR. JEPSEN reiterated that HB 394 was created specifically for Cook Inlet gas companies. 4:31:27 PM REPRESENTATIVE RUFFRIDGE shared his understanding that HB 394 would prohibit certain companies from falling under the RCA's Chapter 5 of Title 42 of Alaska Statute. 4:32:22 PM REPRESENTATIVE CARRICK asked how many natural gas facilities in Alaska would be exempt from Chapter 6 under HB 394. MR. JEPSEN answered that there aren't many companies that would be exempt and pointed to a current project in Cook Inlet that would fall under the exemption section of the proposed legislation. 4:35:24 PM MS. ALVEY explained that Alaska Statute (AS) 42.06.630 currently defines what a pipeline facility and pipeline carrier are as defined by the pipeline act and explained how other statutes in AS title 42 interact with each other and the proposed legislation. REPRESENTATIVE SADDLER asked for an example of a pipeline facility operated by a pipeline carrier. MS. ALVEY said that a pipeline facility is the facility where a pipeline is operated by a pipeline carrier. In response to follow-up questions, she said that a pipeline carrier is the owner of the pipeline, while a pipeline facility is the place where the pipeline operates. 4:38:07 PM MR. SIMS used Harvest Midstream as an example of a pipeline facility operated by a pipeline operator. 4:38:40 PM REPRESENTATIVE FIELDS asked Representative McKay what the definition of "fair return" is in statute. MR. JEPSEN deferred the question to Robert Doyle. 4:39:24 PM MR. DOYLE said that coming up with a fair and justifiable rate is a process that would not be determined by legislation but would be done by the RCA on the record. REPRESENTATIVE FIELDS asked what the RCA sees as "revenue requirements" and gave a hypothetical situation related to the term. MR. DOYLE explained that the company under scrutiny for its pricing would have to justify the price before any regulatory action is taken on setting a price. REPRESENTATIVE FIELDS asked whether other ways to create storage had been considered. 4:43:04 PM MR. JEPSEN shared the bill sponsor's belief that crafting a piece of legislation is the most prudent and effective method of getting more private sector gas storage online. 4:43:41 PM REPRESENTATIVE SADDLER commented that a fair rate is not determined by legislation and asked Mr. Doyle if the RCA makes allowable rate of return rate decisions and further questioned what is considered "fair" by the RCA. MR. DOYLE answered that there needs to be a utility that can be viable over time and a good return margin to the ratepayer. REPRESENTATIVE SADDLER said that the RCA is already doing that and clarified the intent of his question. 4:46:35 PM CHAIR SUMNER announced that HB 394 was held over.