HB 394-RCA REGULATE NATURAL GAS STORAGE FACILITY  1:04:36 PM CHAIR MCKAY announced that the first 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." 1:05:08 PM CHAIR MCKAY, on behalf of the sponsor, the House Resources Standing Committee, on which he served as chair, presented the sponsor statement for HB 394 [copy 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. 1:08:30 PM TREVOR JEPSEN, Staff, Representative Tom McKay, Alaska State Legislature, on behalf of the sponsor, the House Resources Standing Committee, of which Representative McKay served as chair, presented HB 394 via a PowerPoint presentation [hard copy included in the committee packet]. He began on slide 2, stating that HB 394 would address the regulations for the storage of liquefied natural gas (LNG) and the Regulatory Commission of Alaska (RCA). Considering the projected gas production shortage, he stated that the proposed legislation was created to encourage third-party gas storage in Cook Inlet. He stated that currently Cook Inlet Natural Gas Storage Alaska (CINGSA) is the only gas storage facility in Cook Inlet, of which Southcentral Alaska is dependent. In order to increase storage volume, he argued that the state needs to capitalize on the depleted reservoirs in Cook Inlet for storage, and this storage would need to be regulated in a manner to attract the private sector. He noted the gas production issues CINGSA had during the winter, as this brought attention to the need for more gas storage. 1:10:03 PM MR. JEPSEN discussed the four depleted reservoirs in the state, which are currently acting as active gas storage facilities, as seen on slide 3. He listed the following: CINGSA, Kenai Gas Pool 6, Pretty Creek, and Swanson River. MR. JEPSEN moved to slide 4 and directed attention to the graphic to explain gas storage in depleted reservoirs. He defined the types of gas stored, as follows: cushion or pad gas, working gas, and inventory gas. In an example, he pointed out the amounts of each type of gas CINGSA maintains in a reservoir. MR. JEPSEN moved to slide 5, which delineated the duties between the three state organizations that engage in gas storage activities. The organizations listed were Alaska Oil and Gas Conservation Commission (AOGCC), Department of Natural Resources (DNR), and RCA. 1:13:22 PM MR. JEPSEN moved to slide 6, titled "HB 394 Overview," which read as follows [original punctuation provided]: • Clarifies the regulation of natural gas storage operations liquified natural gas storage to the RCA under Chapter 5 of Title 42 • Exempts LNG import facilities already regulated by the Federal Energy Regulatory Commission (FERC) • Clarifies that fair market value (FMV) costs related to gas storage operations will be considered when determining a just and reasonable rate under 42.05 • Creates confidentiality requirements related to financial statements of entities providing gas storage operations 1:15:04 PM BECKY ALVEY, Manager, Advisory Section, Regulatory Commission of Alaska, provided a PowerPoint presentation, titled "House Bill 394: RCA Regulation of Gas Storage Facilities," [hard copy included in the committee packet]. On slide 2 through slide 4, she discussed the changes that HB 394 would present to RCA. She stated that the proposed legislation would require RCA to regulate natural gas storage and LNG storage, including those that are connected to a facility by a pipeline. The legislation would also address the rates and costs of storing gas, classify records as confidential, exempt some requirements concerning pipeline facilities, and exempt LNG facilities that are under the Federal Energy Regulatory Commission (FERC). She noted that HB 394 would also amend some definitions. MS. ALVEY moved to slide 5 and slide 6 and addressed the potential impacts of the proposed legislation on RCA, which include that RCA would need to process applications for instate pipeline carriers with storage facilities, review and approve tariff filings for these carriers, and implement terms and rates for natural gas service. She continued that RCA would also need to review and approve tariff filings for natural gas and electric utilities that request cost recovery for using storage facilities. She stated that application forms and regulations may need to be revised and additional regulations may need to be implemented on the cost recovery provisions. She added that new regulations may be needed to address the confidentiality of records. 1:19:31 PM CHAIR MCKAY asked whether RCA is in support of HB 394. 1:19:56 PM ROBERT DOYLE, Chair, Regulatory Commission of Alaska, answered questions on HB 394. He expressed support for the proposed legislation on behalf of himself. He added that RCA has not yet voted on this; therefore, he is not speaking for the commission. 1:20:08 PM REPRESENTATIVE SADDLER questioned how the role of the fair market value of oil and gas fields would affect the setting of rates. COMMISSIONER DOYLE expressed the understanding that there would need to be a level-playing field among all the storage facilities, and to do this all the investments and depreciation would need to be considered, as these are pieces of revenue requirements. In terms of gas contracts that utilities are signing, he said, RCA does not negotiate these; however, RCA would review and approve them. He stated that the wellhead price of natural gas would not be regulated, so the negotiations would address this. REPRESENTATIVE SADDLER questioned how the value of the gas fields would be determined when they are contributing to recoverable costs. COMMISSIONER DOYLE provided an example with CINCA's two new wells. He pointed out that there would need to be a reasonable return on CINCA's investment, depreciation would need to be determined, and the overall operating cost of the field would need to be considered. He stated that this would all go through a hearing process. He added that this would also depend on the statute and regulations enacted from the proposed legislation. REPRESENTATIVE SADDLER expressed the understanding that only injection wells were used with the CINGSA example. He questioned whether the proposed legislation would concern gas fields currently producing gas, with the potential for storage in a facility. COMMISSIONER DOYLE expressed the understanding that BRU [Beluga River Unit] is operated in a partnership, and it is an operating field that is being considered for gas storage. He deferred to DNR on whether an operating oil and gas field could be segregated out for storage. 1:23:36 PM CHAIR MCKAY clarified that BRU stands for "Beluga River Unit," and the two CINGSA wells in the example are producer wells, not injector wells. 1:23:55 PM REPRESENTATIVE MEARS pointed out the confidentiality part of HB 394 and the fact that RCA already deals with the financial details of utilities throughout the state. She questioned how this would be different from the confidentiality that already exists within RCA. COMMISSIONER DOYLE answered that RCA deals with confidentiality issues frequently, but the proposed legislation would make this a specific piece of the statute. 1:25:12 PM MS. ALVEY added that the current statutes provide confidentiality upon request. She stated that the proposed legislation would make the pipeline records confidential immediately. Otherwise, currently RCA's regulations provide that records are public. REPRESENTATIVE MEARS questioned whether having blanket confidentiality for an entire regulated service would be unusual. MS. ALVEY stated that in regulation some items are already deemed confidential; however, she expressed uncertainty on any specifics. She expressed the understanding that having these records confidential from the beginning would be different. 1:27:03 PM REPRESENTATIVE BAKER questioned whether the proposed legislation would affect any operations at Point Thomson, where gas condensate is collected. MR. JEPSEN responded that it would not affect Point Thomson, as this area would still be regulated under the Trans-Alaska Pipeline Authorization Act. 1:27:52 PM REPRESENTATIVE SADDLER referenced slide 2 of RCA's presentation and questioned the language concerning storage furnished by facilities that are operated by pipeline carriers. MR. JEPSEN responded that the proposed legislation would use the same language as the Trans-Alaska Pipeline Authorization Act. He explained that, per the proposed legislation, storage facilities that are now regulated under this Act, including those related to pipeline carriers would be regulated under RCA. 1:29:54 PM REPRESENTATIVE MEARS expressed the understanding that FERC would not be setting rates; therefore, there would not be an overlap between RCA and FERC on imported LNG. She requested a conversation on this. She questioned how the fair market rate would be determined in a constrained market place. COMMISSIONER DOYLE answered that, regardless of whether production is coming from current fields or BRU, the negotiating parties would set the negotiated agreements for LNG and the fair market price, with a review by RCA. He reiterated that RCA's role is not to negotiate; rather, it is to approve the final rates charged by the utilities to the customers. 1:32:04 PM JOHN SIMS, President, Enstar Natural Gas, answered questions during the hearing on HB 394. He expressed the opinion that what the entities would regulate is a good question. He expressed the belief that the utility companies currently do not know whether they would own the infrastructure, or the gas would be bought at a determined rate. If it is a utility-type asset where the services are purchased, he expressed the support for RCA to be the regulatory body, and this is because of transparency purposes; however, he expressed the opinion that it would be too early to make a determination which entity should regulate this. 1:33:54 PM MR. JEPSEN addressed why the FERC regulation would be necessary. He stated that FERC regulates plants participating in interstate commerce with LNG. He stated that the carveout was put in the proposed regulation because without it these plants would also be regulated by RCA. He noted that double regulation is not being sought. 1:35:09 PM REPRESENTATIVE RAUSCHER pointed out that the bill would "encourage" third-party gas storage. He questioned whether the intention of the proposed bill would be to provide a framework for utilities, as they understand that future gas storage would be needed. MR. JEPSEN expressed confusion by the question. However, per the addressed language, he explained that the word "encourage" was used so private sector companies would allow their storage to be used for third-party gas storage. He added that if legislation does not address this, private storage might not be opened for use by utilities. 1:36:44 PM CHAIR MCKAY expressed the understanding that HB 394 was not written to impact CINGSA; rather, it would be asking the private sector in Cook Inlet to provide additional storage so any future shortages would be addressed. 1:37:18 PM REPRESENTATIVE SADDLER questioned whether the proposed legislation was written so storage facilities could accept imported gas. MR. JEPSEN responded that HB 394 would apply to local and imported gas. CHAIR MCKAY pointed out that this is important because the year 2030 would be the earliest that LNG could be imported; therefore, the proposed bill looks to the future. 1:38:52 PM MR. JEPSEN gave the sectional analysis for HB 394 [copy included in the committee packet], which read as follows [original punctuation provided]: Sec. 1 Adds new subsections to AS 42.05.141 to include the regulation of natural gas storage and liquefied natural gas storage under the jurisdiction of the Regulatory Commission of Alaska (RCA), including storage facilities operated by a pipeline carrier or part of a pipeline facility. Sec. 2 Amends AS 42.05.381(k) to further specify cost considerations for storing gas in a gas storage facility or liquefied natural gas in a liquefied natural gas storage facility in determining just and reasonable rates. Sec. 3 Provides a definition of "gas storage facility". Sec. 4 Adds a new section to AS 42.05 to address the confidentiality of records related to the finances of gas storage facilities, liquefied natural gas storage facilities, or public utilities providing natural gas storage services. Sec. 5 Amends AS 42.05.711(q) to limit the exemption from RCA gas storage regulatory authority to gas storage associated with a North Slope natural gas pipeline facility operated by a North Slope natural gas pipeline carrier. Sec. 6 Adds a new subsection to AS 42.05.711 to specify an exemption from RCA gas storage regulatory authority for liquefied natural gas import facilities under the jurisdiction of the Federal Energy Regulatory Commission (FERC). Sec. 7 Adds new subsections to AS 42.06.140 to clarify RCA regulation of natural gas and liquefied natural gas storage under 42.05, including storage facilities operated by a pipeline carrier or part of a pipeline facility. Sec. 8 Conforming language which adds a new subsection to AS 42.06.370 to specify cost considerations related to pipeline carriers in determining just and reasonable rates. Sec. 9 Amends AS 42.06.445(a) by adding the new subsection (g) to the exceptions related to the public inspection of records in the possession of the commission. Sec. 10 Adds a new subsection (g) to AS 42.06.445 which specifies the confidentiality of records held by the commission related to the finances of pipeline carriers. Sec. 11 Conforming change repealing AS 42.05.990(10)(B) and AS 42.05.990(11)(B) which exempt natural gas and liquefied natural gas storage which is incidental to the production or sale of natural gas to third-party customers from 42.05. Sec. 12 Provides for an immediate effective date. 1:42:34 PM REPRESENTATIVE MCCABE questioned whether the proposed legislation would apply to carbon sequestration storage. MR. JEPSEN expressed uncertainty, and he deferred the question to DNR. He expressed the understanding that the storage would need to be separated into natural gas or carbon sequestration. REPRESENTATIVE MCCABE clarified that his question concerned whether the incentives would be the same. CHAIR MCKAY expressed the opinion that this would be impractical because carbon dioxide is considered a waste product. 1:43:54 PM DEREK NOTTINGHAM, Director, Division of Oil and Gas, Department of Natural Resources, expressed the understanding that carbon capture and sequestration would be separate, handled under different regulatory authorities. CHAIR MCKAY expressed agreement that carbon dioxide cannot be stored in a natural gas well. REPRESENTATIVE MCCABE interjected that he was not speaking about putting carbon dioxide in a natural gas reservoir. He questioned whether the natural gas sector would be given the same incentives as companies storing carbon dioxide. MR. JEPSEN explained that carbon sequestration would not be economical without the federal government tax subsidy. He stated that because third-party gas storage would be regulated by RCA, with a fair market value, it would be economical. He continued that carbon sequestration and gas storage would be done by different processes, and he expressed uncertainty concerning the comparative economics. 1:46:29 PM CHAIR MCKAY stated that HB 394 would be setting up the regulatory framework so gas can be stored on a temporary basis for use during winter conditions. He stated that the only economic component would be the sell of the gas. He pointed out that there would be no tax breaks or discounts. MR. SIMS concurred with Chair McKay. 1:48:14 PM REPRESENTATIVE SADDLER questioned the difference between a pipeline carrier and a pipeline facility. MS. ALVEY answered that "pipeline facilities" is defined in statute as all the facilities of the total system, while pipeline carriers would reference the owners, including any corporations. 1:51:02 PM REPRESENTATIVE MEARS expressed support for HB 394 and spoke to the importance of gas storage. 1:52:03 PM MR. JEPSEN clarified that under HB 394 third-party gas storage would be available to any utility company that wanted to purchase the storage, not just Enstar Natural Gas. 1:52:39 PM MR. SIMS reiterated the importance of having short-term, medium- term, and long-term storage planning for utilities. He noted that most of the language in the proposed legislation would be a policy call. 1:53:11 PM BRETT HUBER, Commissioner, Alaska Oil and Gas Conservation Commission, stated that the commission currently regulates the wells, whether producers or injectors. He expressed the understanding that under HB 394 the commission would continue to do this. 1:54:00 PM CHAIR MCKAY stressed that this would create a tool for immediate action that the legislature and the state government could take to protect the Railbelt during the winter. 1:54:39 PM CHAIR MCKAY opened public testimony on HB 394. After ascertaining there was no one who wished to testify, he closed public testimony. CHAIR MCKAY announced that HB 394 was held over.