HB 290 - STRANDED GAS PIPELINE CARRIERS CO-CHAIR HUDSON announced that the next order of business would be HOUSE BILL NO. 290, "An Act relating to stranded gas pipeline carriers and to the intrastate regulation by the Regulatory Commission of Alaska of pipelines and pipeline facilities of stranded gas pipeline carriers." [HB 290 was sponsored by the House Resources Standing Committee. Before the committee was CSHB 290(O&G).] Number 1973 LORALI MEIER, Staff to Representative Beverly Masek, Alaska State Legislature, speaking as the committee aide to the House Resources Standing Committee, presented the sponsor statement: As you know, before any North Slope natural gas pipeline project can proceed, certain amendments to existing statutes are required. The committee substitute for House Bill 290, [Version G], amended in [the House Special Committee on] Oil and Gas, will amend the Pipeline Act [AS 42.06] to define a North Slope natural gas pipeline consistent with existing state statute. This bill will clarify that the Regulatory Commission of Alaska [RCA] has authority to regulate only the intrastate transportation of North Slope natural gas through the natural gas pipeline. Regulation of export quantities will be regulated by the federal government. CSHB 290(O&G) defines a fair, predictable and timely process to identify and dedicate intrastate capacity in a North Slope natural gas pipeline before one is constructed, and it establishes the criteria for needed pipeline system expansions to accommodate increased demand for in-state gas supply. CSHB 290(O&G) also will amend the Public Utilities Act [AS 42.05] to clarify that a North Slope natural gas pipeline is exempt from the requirement of operating as a public utility. Finally, the Right-of-Way Leasing Act [AS 38.35] will be amended to limit the requirement of common carriage for North Slope natural gas pipeline systems to the transportation of intrastate gas volumes only. CSHB 290(O&G) also defines the types of intrastate transportation services that will be available in a North Slope gas pipeline system. Collectively, these changes are intended to provide greater certainty and predictability in the regulation of North Slope natural gas pipeline systems. This increased certainty will increase the marketability of Alaska's North Slope natural gas and hopefully will facilitate expedited construction of a pipeline and related facilities necessary to transport Alaska's North Slope natural gas to market. The changes made in the Oil & Gas Committee [CSHB 290(O&G)] I will address now. There were five amendments. The first amendment changed all references from stranded gas to North Slope natural gas. This amendment will apply only to undeveloped natural gas on the North Slope, to be sure that this bill would not affect any other ... natural gas throughout the state, such as in Cook Inlet. The second amendment was offered because of concerns brought up by committee members in the previous committee of referral [House Special Committee on Oil & Gas], as well as the Administration and the Regulatory Commission of Alaska. This amendment removes the requirement for a take-or-pay contract for local distribution companies, also called LDCs; an example would be Enstar or the Fairbanks Natural Gas Company. The third amendment affects AS 38.05.182 by requiring the commissioner of the Department of Natural Resources to consider whether the royalty oil and gas taken in kind may be necessary to meet the state's present and projected intrastate, domestic and industrial needs. It further requires the commissioner to obtain legislative approval, by law, prior to excepting the state's royalty in kind or in value. ... The fourth amendment was meant to take care of concerns by the RCA on expansion requirements. Before an expansion of the pipeline can be made, the RCA must make its determination stating that the requirements must not impose undue financial burden on the carrier or its customers. It also sets into law the requirement that the cost may be borne by the person making the request. And the fifth amendment was adopted to address concerns from Nan Thompson, who is the commissioner of the Regulatory Commission of Alaska. She stated that the RCA wanted the legislature to set the tariff methodology for the gas pipeline in statute. REPRESENTATIVE COWDERY asked whether HB 290 determines the points for the pipeline. Number 2271 MICHAEL HURLEY, ARCO Alaska Incorporated, and Manager, Alaska North Slope Liquid Natural Gas (LNG) Sponsor Group, replied: No, it doesn't. It should apply equally to any terminus or pipeline system throughout the state. It simply clarifies jurisdiction between the intrastate and the export. REPRESENTATIVE COWDERY asked whether the tariff of the pipeline would be regulated. MR. HURLEY specified that the tariff for the intrastate movement of the pipeline would be regulated by the RCA. He then read his testimony into the record: We appreciate the opportunity today to express our views on the House Special Committee on Oil and Gas committee substitute for HB 290. For the last year and a half, the sponsor group, comprised of ARCO Alaska, BP Amoco, Foothills Pipe Lines Ltd., Phillips Petroleum and Marubeni Corporation .... REPRESENTATIVE BARNES interjected that there was a misstatement of fact in Mr. Hurley's opening statement, because he had said BP Amoco and the other entities have worked together for the last year and a half; however, she believes that BP Amoco just joined the sponsor group. MR. HURLEY indicated that Representative Barnes was correct: BP Amoco had joined the sponsor group in December. He continued: For the last year and a half, ARCO Alaska, Foothills Pipe Lines Ltd., Phillips Petroleum and the Marubeni Corporation have been actively pursuing the development of a new design for a market-viable LNG export project. Crucial to the viability of this project is the development of a commercial regulatory regime, which will provide the regulatory certainty our long-term customers require. Additionally, this bill was designed to meet the needs of the state and federal regulators for adequate access and commercial oversight. As originally envisioned, HB 290 was intended to accomplish three goals: first, to provide clarity about the regulatory jurisdiction of the Regulatory Commission of Alaska (RCA) with respect to an LNG export project, which would also supply intrastate gas transportation needs; second, to limit the current common-carriage provisions in the Right of Way Leasing Act and the Pipeline Act for an LNG export project to intrastate gas transportation; and third, to develop a fair and equitable process for determining intrastate capacity needs for the system. The current committee substitute before you, in large measure, accomplishes those goals, but has raised several concerns that limit our support for the current CS. Section 1 of the CS addresses gas royalty issues between the state and gas producers, which are outside of the commercial regulatory structure for an LNG export project. And while these issues may, or may not, be legitimate policy questions for the state, we believe their inclusion in this legislation detracts from the clarity and certainty of commercial regulation this legislation was designed to achieve. Thus, we would respectfully suggest that this section be deleted from this bill, and if warranted, considered in independent legislative action. The second section of the CS deals with the Right of Way Leasing Act, and is only intended to clarify that the current statutory common-carriage requirement should apply only to intrastate gas shipments. The third and fourth sections of the CS clarify that a North Slope natural gas pipeline system's intrastate shipments would be regulated under the Pipeline Act (AS 42.06), rather than under the Utilities Act (AS 42.05). In Section 5, a new subsection is added to the Pipeline Act creating procedures, within RCA's existing pipeline certification process, for determining the amount of pipeline capacity which should initially be set aside for intrastate transportation. That process sets out distinct criteria for capacity for Local Distribution Companies (LDCs), which must submit their gas purchase contracts to the RCA under current regulations, and for large industrial gas users, who must provide written commitments to transport intrastate gas volumes, supported by take-or- pay purchase commitments with stranded gas producers. Likewise, in Section 6 of the CS, expansions of a stranded-gas pipeline may be ordered by the commission only if such requests for additional intrastate capacity are supported by firm commitments. Section 7 allows the RCA to consider allowing a reservation or similar charge for firm intrastate transportation in the intrastate tariff, which it must approve. Section 8 of the CS, which was added to the bill in the House Special Committee on Oil and Gas, requires that intrastate tariffs be designed as if the pipeline were regulated under the Public Utilities Act. We believe that this requirement creates a regulatory hybrid which reduces the clarity and certainty intended in this legislation. Contrary to popular belief, the underlying statutory requirements for tariffs under both the Public Utilities Act and the Pipeline Act are the same. AS 42.05.381(a), under the Public Utilities Act, and AS 42.06.370(a), under the Pipeline Act, both impose the identical requirement that tariff rates be "just and reasonable." We believe that the appropriate time for the detailed determination of what should or should not be allowed in an intrastate tariff will be when filed tariffs are before the RCA for its consideration as to whether they are just and reasonable. And we believe that the RCA has the flexibility under their current statutory standard to protect the public interest. Thus, we would respectfully suggest that this section be deleted from this bill because it needlessly creates uncertainty about the intended regulatory regime. Finally, Section 9 of the bill adds several definitions of terms referred to in other sections of the bill, in an effort to increase the clarity and understanding of the other sections. In summary, we believe Sections 1 and 8 of the CS should be removed from the bill. They detract from the intent of providing clarity in the regulatory regime for the project. I would like to thank the co-chairs and the committee for your sponsorship of this important piece of legislation, and for this opportunity to express our views on the House Oil and Gas committee substitute for HB 290, and I'd be happy to address any questions at this time, or at your convenience. Number 2664 CO-CHAIR MASEK said: Before we start with questions from the committee, I would like to ask you to address a few concerns that have been brought to my attention. My staff received a phone call on Friday afternoon from another possible project sponsor. There have been questions as to the motives of the ANS Sponsor Group regarding the exclusion of the Marine Terminal Facilities and the LNG plant from the Right of Way Leasing Act. Further, they said the ANS Sponsor Group is trying to avoid oversight from the Joint Pipeline Office (JPO), and indicated that HB 290 in its current form would cause a disadvantage to a project they are working on. It was my understanding that ... before any North Slope natural gas pipeline project could proceed, certain amendments to existing statutes are required, and that all potential project sponsors would benefit from the changes addressed in HB 290. ... Have you attempted to coordinate efforts with other potential project sponsors on the effects of HB 290? MR. HURLEY replied that they have, and their intent was to make the project applicable to any project that was going to try and move natural gas from the North Slope for export. He suggested that clarifying the jurisdictional issues between the federal and RCA jurisdictions is best handled in-state, [by] the legislature. He indicated that they have begun discussion with the Port Authority and Yukon Pacific Corporation. He pointed out that none of the discussions he has had with anyone, including the Port Authority that morning, have indicated that there is any problem. Number 2824 REPRESENTATIVE BARNES asked Representative Masek is she could identify a sponsor that has not come forward with its concerns. CO-CHAIR HUDSON said that those types of issues really need to be put in writing, because he believes that what they are discussing is landmark legislation. MS. MEIER agreed with Co-Chair Hudson, saying she believes that it would be beneficial if the groups that have concerns would come forward and work with them on possible changes. She referred to Representative Barnes' question and indicated that the phone call she received Friday was from the Yukon Pacific Corporation. REPRESENTATIVE BARNES said she believes the groups that have concerns should present their concerns in writing to the committee staff. She asked Mr. Hurley how Sections 1 and 8 got into the bill. TAPE 00-12, SIDE B Number 2983 MR. HURLEY said [begins midspeech because of tape change], "... as an amendment." REPRESENTATIVE BARNES wondered if it was due to testimony before the committee or was just someone's idea. MR. HURLEY replied that he believes it was from the chairman. He continued that with respect to Section 8, which deals with the tariff methodology, it is his understanding that Section 8 was brought up before the committee initially by Nan Thompson and the Regulatory Commission of Alaska. REPRESENTATIVE BARNES referred to Mr. Hurley's testimony regarding the belief that this requirement creates a regulatory hybrid that reduces the clarity and certainty intended in this legislation. She indicated that she assumes Mr. Hurley's belief is that clarity and certainty existed prior to the time Section 8 was added. She asked him whether she is correct in thinking that. MR. HURLEY responded that they had discussions with Nan Thompson as the bill was being heard in the House Special Committee on Oil & Gas, and she brought forward several concerns that were dealt with in Amendments 2 and 3. He indicated that there was some concern about there being a hybrid, and they made some changes to make sure that it was much clearer in "common carriage" than in "public utility." He explained that Nan Thompson had one additional concern about the tariff methodology that went in as an amendment as well. Therefore, with the changes made by Amendments 2 and 3, they thought it was much clearer that the pipeline was to be regulated under the Pipeline Act, and what made it a hybrid was the addition of Section 8, which was [added by] Amendment 5. Number 2845 MIKE BARNHILL, Assistant Attorney General, Oil, Gas & Mining Section, Civil Division, Department of Law, commended the efforts of the sponsor group and all others who are working toward bringing the commercialization of North Slope natural gas to a reality. He indicated that the Administration supports the efforts. He also noted that the Administration has several concerns with HB 290 in its present form. REPRESENTATIVE BARNES asked if those concerns were in writing. MR. BARNHILL replied that the concerns he was about to outline are basically the same, with a few additions, as the ones outlined by Roger Marks in the written testimony he submitted. CO-CHAIR HUDSON asked Mr. Barnhill if he had testified before the House Special Committee on Oil & Gas. MR. BARNHILL replied yes. CO-CHAIR HUDSON wondered if any of their changes were incorporated during the deliberations in the House Special Committee on Oil & Gas. MR. BARNHILL responded that the additional concerns were essentially with Section 1, which is a product of the recommendations by the House Special Committee on Oil & Gas. He continued that there are four concerns that the Administration had expressed in that committee, and those are identified in the written testimony by Roger Marks. There is one additional concern, with respect to Section 1. He said he would be happy to provide it in writing and to address the committee at a later date. REPRESENTATIVE BARNES stated, "Madam Chair, I have no objection to hearing him now, but I don't want him coming down here anymore without written testimony." MR. BARNHILL explained that Section 1 is a change to the Alaska Lands Act with respect to royalty in kind. He indicated that the Department of Natural Resources (DNR) had asked him to share with the committee its concerns. First, the department is concerned that Section 1 creates a significant change to how royalty in- kind contracts are handled. The remaining concerns, already pointed out by Roger Marks, are these: The purpose of Section 2 is to clarify that the export portion of the North Slope natural gas pipeline will not be a common carrier. The Administration supports this effort and does not desire that the export portion of the pipeline be a common carrier. MR. BARNHILL said there are two issues raised by the specific language, as proposed, that are of concern to the Administration. The first is the use of the term "North Slope natural gas pipeline carrier," which is now defined in the last section of the bill. He explained that this definition - on page 9 of the committee substitute - excludes marine terminal facilities; the Administration is concerned that the exclusion creates an unnecessary ambiguity in the Right of Way Leasing Act, which explicitly includes marine terminal facilities. Under the Right of Way Leasing Act, the Joint Pipeline Office currently regulates marine terminal facilities such as the one in Valdez. Mr. Barnhill reported that the Department of Law, Yukon Pacific Corporation and the sponsor group are working closely to find language that would be suitable to all parties. Although no agreement has been reached yet, Mr. Barnhill believes there is language which all three parties can find agreeable. MR. BARNHILL said the second concern in Section 2 is that it requires the intrastate portion of the natural gas pipeline to act as a common carrier. He provided some background. Gas lines in this country typically act as contract carriers, not common carriers. That is because a common carrier must accept a shipment of gas that is tendered to it whether it has the capacity to handle that shipment or not; the way that it handles that is by prorating the already committed shipments on the line. For the Trans-Alaska Pipeline System (TAPS) it is not a problem, because the pipeline is big enough to handle all the oil that is tendered to it. For an intrastate gas pipeline in Alaska, however, there might not be sufficient capacity for intrastate use. Number 2538 REPRESENTATIVE BARNES interjected: On that point, it seems to me, if memory serves me correctly, the whole point of this bill, then, was to make sure that we could sign contracts - or whoever the person was developing the gas - sign contracts for export, knowing that there would be capacity within the line to carry that export. And it seems to me what you're saying here is that this really negates the whole premise of having this section in here that allows -- or for us passing a bill which says that we will meet contracts in a timely manner. MR. BARNHILL responded: I'm not going to go so far as to say it negates it, but I believe that it introduces an unnecessary ambiguity into the system, and I think it is of extreme concern to the state that we resolve this. REPRESENTATIVE BARNES agreed. CO-CHAIR HUDSON asked whether Mr. Barnhill is specifically referring to Version G [CSHB 290(O&G)], which requires the pipeline to operate as a common carrier. MR. BARNHILL replied yes. CO-CHAIR MASEK clarified that the language is on page 3, line 5. Number 2449 MR. BARNHILL indicated that in 1997 the governor had commissioned a North Slope natural gas commercialization task force. One of the conclusions that they came to was that the gas pipeline should not be a common-carrier pipeline, but a contract-carrier pipeline. He pointed out that they appreciate the efforts of the sponsor group to make sure that the export section of the pipeline is not a common-carrier pipeline, but he doesn't believe that it goes far enough. MR. BARNHILL stressed the need to squarely address whether or not the intrastate section of the pipeline should be a common carrier. In Section 3, page 5, line 13, it excludes the North Slope natural gas pipeline from the Public Utilities Act (AS 42.05). He explained that his original understanding for the exclusion was the perception that the Public Utilities Act and the Pipeline Act were different; therefore, he was surprised to hear from the sponsor group that the rate-making methodology under each Act is the same. He indicated that he is unclear as to why, at the outset, the exclusion is in the bill if the rate- making methodology is the same. The concern of the Administration is that the differences between the Public Utilities Act and the Pipeline Act are carefully looked at, to ensure that if the North Slope natural gas pipeline is excluded from the Public Utilities Act, it is done with a full understanding of what is being lost and gained. Number 2212 MR. BARNHILL addressed the four concerns outlined by Roger Marks in his written testimony dated February 1, 2000. The first concern has to do with local jurisdictions committing in advance to secure pipeline capacity without knowing what the cost will be, especially if the gas-purchase contracts are also not in place. The second concern has to do with allocation of capacity between intrastate and export use in the event of shortages or excesses of capacity. The third concern has to do with exclusion of the pipeline from the Public Utilities Act and subjection to the Pipeline Act, and they are still analyzing the extent to which the differences between the two may be material. The fourth concern has to do with the exclusion of marine terminal facilities from the Right of Way Leasing Act. REPRESENTATIVE WHITAKER referred to Section 1 and asked whether the commissioner is concerned with regard to the following language: Before taking any action with regard to the taking and disposition of royalties on oil and gas, the commissioner shall submit a proposed determination to take royalty to the legislature ... and If the legislature does not approve the proposed determination, the commissioner may not implement the determination as submitted. MR. BARNHILL indicated that the commissioner's office did not share with him any substantive concerns. REPRESENTATIVE WHITAKER surmised that there is a "separation of powers" issue. He explained that his concern, in introducing that amendment, was that they protect the legislature's purview and oversight. [Co-Chair Masek asked Mr. Hurley to respond to Mr. Barnhill's concerns.] Number 2050 MR. HURLEY indicated that the Administration has maintained these four concerns for some time. He referred to the first concern, having to do with precommitting capacity usage for intrastate volumes without knowing what the price is going to be; he explained that it was essentially addressed in the amendments that were taken up in the House Special Committee on Oil & Gas. He pointed out that they are trying to lower the bar for the communities that are going to be getting gas along the system, so that they don't have to commit to big take-or-pay contracts as long as they are providing residential and commercial use. He explained that the fear the sponsor group had was with large industrial uses that would have space built and then have their financing fall through; therefore, they have kept the bar high for large industrial uses. MR. HURLEY said the question as to what the remaining tariffs will ultimately be depends on the cost of the system. He pointed out that the second concern that the Administration raised was with the allocation of capacity between in-state and export [use] during shortages. He explained that in situations involving shortages, there are certain requirements under federal statute for export use to be cut back to meet in-state use. He noted that the Regulatory Commission of Alaska should be able to handle intrastate volumes. REPRESENTATIVE BARNES asked how they plan to deal with the contracts they have with purchasers of gas during shortages. MR. HURLEY explained that in the event of shortages, most of the contracts will have force majeure clauses, meaning it will not be the fault of the LNG company if it is unable to get gas from the producers because of an operational upset or catastrophic event. REPRESENTATIVE BARNES stated that she could understand if there were an operational upset or catastrophic event, but she was referring to export use being cut back to meet in-state use. Number 1812 MR. HURLEY clarified that the export contracts would be under the force majeure clause. He referred to the third concern, having to do with the marine terminal and the Right of Way Leasing Act, and indicated they are trying to work on that, to come up with something reasonable. He pointed out that their intent for removing the marine terminal from the definition of the system was to take care of the current Right of Way Leasing Act requirement that there be contract carriage for any right-of-way lease. He noted that they were only trying to exclude that terminal and that LNG plant, because the LNG plant will be dedicated for export. If it were under common carriage, it would be open for people to come in and force the sale of LNG in the state, which is not necessarily what the plant will be designed for. He added that the ability for someone to set up an LNG plant and get gas from the system and provide LNG in-state is not impinged upon. REPRESENTATIVE BARNES said she believes that if they exclude the marine terminals and the integrated plant, facilities and equipment, then they are excluding a large portion of what should be at the end of the line, as it relates to an LNG project. She said she is not comfortable with the language. MR. HURLEY replied that he is aware of that concern, and they are trying to work out some of the language to make that clear. He explained that all they are trying to do is to make sure the plant is not under common carriage. REPRESENTATIVE BARNES explained that she just wants to make sure that there is a plant at the end of the line. MR. HURLEY indicated he wants that as well. He further stated that the fourth concern is a jurisdictional issue between the Public Utilities Act and the Pipeline Act. The sponsor group believes that the Pipeline Act, which was designed for a trunk line wholesale oil and gas pipeline movement, was more appropriate than the Public Utilities Act, which was designed for direct sales to consumers. He pointed out that the sponsor group does not anticipate, at this time, to be selling gas from the pipeline to individual consumers along the way; they did not want to step on the toes of local distribution companies like Enstar and Fairbanks Natural Gas. REPRESENTATIVE BARNES said it seems that he is correct on that point, but wondered if they also regulate oil under the Public Utilities Act. MR. HURLEY clarified that they regulate it under the Pipeline Act. Number 1476 ROSS COEN, Alaska Forum for Environmental Responsibility, testified via teleconference from Fairbanks. He addressed one point having to do with the marine terminal exemption. He referred to page 9, Section 9, paragraph (16), where it defines "North Slope natural gas pipeline" to specifically exclude marine terminal facilities, including pollution control equipment. He said that as he reads it, while individual state agencies will retain the regulatory authority on a marine terminal, the regulation could not occur under the Joint Pipeline Office; from a purely environmental standpoint, therein lies his concern. It has come to his attention that the exemption is motivated purely by the economics of the proposed gas line. MR. COEN proposed that there be whatever provisions are necessary for the project to be economically feasible, but that the bill be amended to specifically include full regulatory authority over pipelines and facilities by the Joint Pipeline Office, in order to have the necessary level of environmental safeguards, regulation and oversight. He said he would have difficulty believing that the entire project and its economic feasibility hinge entirely on whether the Joint Pipeline Office retains regulatory authority. REPRESENTATIVE BARNES indicated she is under the impression that if the committee corrects what Mr. Coen has recommended, then the Alaska Forum for Environmental Responsibility will be in support of the gas line. MR. COEN said he is not sure he would go so far as to say that they would throw their full endorsement behind the gas line; however, if the gas line were to be built, then they would seek to have it be built in the most environmentally responsible manner possible. REPRESENTATIVE BARNES said she would like to think that anything they do will be in the most environmentally sensitive manner possible. She would also like to think that if the committee makes the recommended changes, they will have his [Mr. Coen's] and the Alaska Forum for Environmental Responsibility's wholehearted support of the gas line. MR. COEN indicated that when and if that happens, they will talk. NAN THOMPSON, Commissioner, Regulatory Commission of Alaska (RCA), Department of Community & Economic Development, testified via teleconference from Anchorage. She explained that the purpose of her testimony is not to support or oppose HB 290, but to clarify the standards that the RCA will be called upon to require if the bill passes. When the bill was introduced in the House Special Committee on Oil & Gas, that committee identified some areas of confusion between utility and common-carrier regulation that she thought could potentially create problems for potential intrastate users and problems for the RCA as regulators in understanding which standards to apply. MS. THOMPSON pointed out that the three concerns that she originally had identified - relating to initial access standards, expansions and tariff methodology - were clarified with amendments introduced in the House Special Committee on Oil & Gas. She explained that the amendment relating to tariff methodology was a good idea, because there are significant differences between the way they regulate pipelines and utilities. The statutes are different, but the more significant differences are in the case law that has been applied interpreting those statutes and the theory under which rates are designed. Utility rates are set by the RCA, using elements in a rate base, allocating that fairly over time, and allowing a return. The utility has to approve that all of the rate-based elements and all of the costs which they are going to include in their basic rates are ones that they need to incur in order to deliver the service. MS. THOMPSON pointed out that pipeline tariffs generally do not require the same degree of certainty and proof. An important difference for Alaska is that there is not nearly as much case law on pipeline tariff methodology. Most of the major pipeline tariffs in Alaska have been approved by agreement. The rates are negotiated between the major users and the pipeline owners themselves are approved for the same degree of finding of "just and reasonable" as for all the elements of a tariff. The reason that is a problem is not because it necessarily creates unfair rates, but because it would create less certainty for a potential intrastate user. Those intrastate users need to have some idea of what they are going to be charged for transportation, in order to decide if they want to take advantage of this opportunity to use gas from this line. She indicated that [RCA] is not going to be able to tell those users what the rate will be before they start; however, if [RCA] tells them that it is a utility tariff methodology, they will have the formula and, therefore, will be able to determine, within some range, what the result will be. MS. THOMPSON respectfully disagreed with Mr. Hurley that it creates some ambiguity. She said she believes it resolves an ambiguity that was in the original bill as to which tariff methodology they should use. She clarified that some gas lines in the state are regulated as utilities; the owners of those gas lines have chosen to be regulated as utilities. She pointed out that Representative Barnes was correct that no oil pipelines are regulated as utilities. Number 0879 REPRESENTATIVE BARNES wondered if Marathon also has some of those lines. MS. THOMPSON replied that Marathon's Cook Inlet pipeline is regulated as a utility for tariff purposes. Number 0835 REPRESENTATIVE WHITAKER requested clarification on whether HB 290 is intended for in-state uses to utilize a utility methodology for determining rates. MS. THOMPSON affirmed that. REPRESENTATIVE WHITAKER requested clarification on whether the determinant for the rate-making methodology is public interest. MS. THOMPSON answered, "That is correct." REPRESENTATIVE WHITAKER suggested that what they have determined, then, is that it is in the public's best interest to have the public interest as the highest priority as a determinant for rate making. MS. THOMPSON said that is correct. She pointed out that the public interest is an important consideration in looking at utility rates. Under both the Pipeline Act and the Public Utility Act, a "just and reasonable" standard is applied; under both, a fair return is required. She indicated that under a utility tariff methodology, it would provide an in-state user with predictable rates. Number 0722 REPRESENTATIVE WHITAKER stated that the intent of the changes to HB 290 was to do just that. He indicated that it is incorrect to say that what they intended was to have the pipeline company act as a utility. REPRESENTATIVE BARNES said she appreciates where Representative Whitaker is coming from. She indicated she is a supporter of in- state use of a portion of the natural gas from the North Slope, because she believes there is plenty of gas for both. She added that it is also important not to mix the export and the in-state use, and they have to be careful in the legislation in how they draft that. Number 0546 CO-CHAIR MASEK stated: In reviewing the record of the hearings before the previous committee of referral for CSHB 290(O&G), it became clear that several issues were raised by the Administration in its testimony as "preliminary" or "tentative" concerns. It is also clear that the Administration's preliminary concerns represented issues raised by a number of different departments and agencies, including the Departments of Natural Resources, Revenue, and Law, as well as the State Pipeline Coordinator's Office and the Regulatory Commission of Alaska. What is not clear from the record is which of those concerns have been resolved by the amendments adopted in the previous committee. As I said when this committee decided to sponsor this legislation, I believe this is a very important bill that can advance Alaska's interest in developing an export project for its vast North Slope natural gas reserves. Therefore, it is my hope that we can resolve any real concerns or issues surrounding this bill in the committee. To avoid that result, I am asking the Administration representatives who have continuing concerns - those individuals who called the committee's staff last Friday - to express their new-found concerns, and the committee's staff to meet with representatives of the ANS-LNG Sponsor Group in an informal working group to see if those concerns can be resolved. I ask these parties [to] coordinate with committee staff, Ms. Lorali Meier, to set up whatever meetings or teleconferences may be necessary, over the next two days, to identify and resolve outstanding concerns. I am also asking the parties to work with Ms. Meier, and to bring me any proposed amendments for resolved issues and a list of outstanding issues by Thursday of this week. This effort is [in] no way intended to substitute for this committee's thorough review and discussion of CSHB 290(O&G). Rather, it is intended to provide needed clarity as to what outstanding issues the committee [needs to] consider. Committee members, as well as the public, will have ample opportunity to address their concerns - including previously raised or new concerns and issues - in subsequent hearings on the bill. CO-CHAIR MASEK appointed a subcommittee consisting of Representatives Hudson, Joule and Barnes. She requested that Representative Barnes chair the subcommittee. [HB 290 was held over.]