HB 4-IN-STATE GASLINE DEVELOPMENT CORP  3:35:27 PM CO-CHAIR SADDLER announced that the next order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 4, "An Act relating to the Alaska Gasline Development Corporation; making the Alaska Gasline Development Corporation, a subsidiary of the Alaska Housing Finance Corporation, an independent public corporation of the state; establishing and relating to the in-state natural gas pipeline fund; making certain information provided to or by the Alaska Gasline Development Corporation and its subsidiaries exempt from inspection as a public record; relating to the Joint In-State Gasline Development Team; relating to the Alaska Housing Finance Corporation; relating to the price of the state's royalty gas for certain contracts; relating to judicial review of a right-of-way lease or an action or decision related to the development or construction of an oil or gas pipeline on state land; relating to the lease of a right-of-way for a gas pipeline transportation corridor, including a corridor for a natural gas pipeline that is a contract carrier; relating to the cost of natural resources, permits, and leases provided to the Alaska Gasline Development Corporation; relating to procurement by the Alaska Gasline Development Corporation; relating to the review by the Regulatory Commission of Alaska of natural gas transportation contracts; relating to the regulation by the Regulatory Commission of Alaska of an in-state natural gas pipeline project developed by the Alaska Gasline Development Corporation; relating to the regulation by the Regulatory Commission of Alaska of an in-state natural gas pipeline that provides transportation by contract carriage; relating to the Alaska Natural Gas Development Authority; relating to the procurement of certain services by the Alaska Natural Gas Development Authority; exempting property of a project developed by the Alaska Gasline Development Corporation from property taxes before the commencement of commercial operations; and providing for an effective date." 3:36:06 PM RENA DELBRIDGE, Staff, Representative Mike Hawker, Alaska State Legislature, continued her sectional analysis of SSHB 4 on behalf of the joint prime sponsors, Representatives Chenault and Hawker. She said SSHB 4 proposes a regulatory framework and highlighted reasons why the state regulates. The legislature decides if something should be regulated, how it should it be regulated, and who should regulate it, she explained. Generally speaking, the legislature has delegated that regulation to the Regulatory Commission of Alaska (RCA) for public utilities in the state and for oil and gas pipelines. There are overall good reasons to regulate something that provides a service to people, especially when there is little competition to provide that service. Thus, regulation protects the provider of the service, the consumers of the service, and members of the public when the public has a benefit from that service. 3:37:55 PM MS. DELBRIDGE pointed out the particular things the RCA does when regulating. The RCA certifies that someone wanting to provide a service is qualified to do so. The RCA ensures that a provider offers safe, adequate services and facilities, and that those services are provided at reasonable rates, terms, and conditions. The RCA also ensures that while providing for reasonable rates, the service provider has an opportunity to make a reasonable rate of return on its investment in providing that service. The RCA looks out for people needing access to that service by ensuring there is not undue discrimination in charges and in services. The RCA ensures that the carrier has enough financial ability to provide the service it is asking to provide. The RCA further provides a structure through regulation so the carrier can set out contract terms and provide changes to those terms as circumstances change over time. 3:38:54 PM MS. DELBRIDGE reminded members of the need for an Alaska Gasline Development Corporation (AGDC) pipeline to operate as a contract carrier. Alaska currently has no regulatory framework for an in-state gas pipeline that operates as a contract carrier. Thus SSHB 4 creates that framework, essentially giving the RCA a new class of pipelines to regulate - contract carrier gas pipelines. This proposed regulatory structure applies to any contract carrier gas pipeline, not just AGDC, and applies only to gas, not oil, pipelines. This proposed regulatory structure does not apply to a pipeline that falls within a federal regulatory jurisdiction, such as that of the Federal Energy Regulatory Commission (FERC). Further, a pipeline regulated under this new contract carrier chapter is exempt from regulation under other regulatory chapters. Also included in SSHB 4 are housekeeping sections needed by the RCA in the chapters under which it regulates. These tell the RCA it can do the regulating job the legislature has told it to do, such as appointing panels to hear matters and including in an annual report its regulatory activities under a given chapter. 3:40:32 PM MS. DELBRIDGE directed attention to the new regulatory structure specifically proposed by SSHB 4, starting with Section 29, page 38, through the end of Section 33, page 51. She related that over the past year and a half, the sponsors worked closely with AGDC and with the Department of Law attorneys assigned to the RCA to structure this framework. She related that the RCA told the sponsors it was very important to be clear in how the legislature would like it to regulate and to then give the RCA the direction and authority to carry out that regulation. This section is not perfect, she said. The sponsors are still talking with attorneys assigned to the RCA and with the administration to ensure the appropriate accountability is included in the bill to protect all parties involved. 3:41:53 PM MS. DELBRIDGE reviewed the provisions of SSHB 4 that empower the RCA, paraphrasing from the sectional analysis [original punctuation provided]: Section 29 (RCA, conforming), amends AS 42.04.080(a), Public Utilities and Carriers and Energy Programs, Regulatory Commission of Alaska, Decision-making procedures, to allow the RCA to appoint a panel for hearing matters under the new 42.08. The RCA needs the statutory authority to appoint a panel and hear a matter that comes before them under one of two existing regulatory statutes. This adds the new regulatory chapter created in HB 4, 42.08, to that statutory direction, so the RCA will be able to act on matters that come up under the new regulatory chapter. Section 30 (RCA review of public utility contracts), amends AS 42.05, Public Utilities and Carriers and Energy Programs, Alaska Public Utilities Regulatory Act, by adding a new section related to RCA review of contracts entered into by a public utility with AGDC for transportation or for contracts public utilities sign to purchase gas or store gas transported on an instate natural gas pipeline regulated under 42.08. Public utility contracts with AGDC may include a covenant for public utilities to collect rates sufficient to meet contractual obligations. Contracts to buy or store gas to be shipped on an instate natural gas pipeline regulated under 42.08 must be submitted to the RCA before they take effect. The RCA has 180 days to disapprove contracts as presented or, if contracts are found not just or reasonable, to disapprove the contracts. Contracts approved are not subject to further RCA review. The RCA may extend the 180 day review period if a public utility fails to provide supplemental information that is available to the public utility. This section provides an interface between regulation of public utilities, and regulation of a contract carrier natural gas pipeline. If the RCA approves a contract involving a utility and the pipeline carrier, the utility has assurances that it will be able to recover its costs in rates charged to utility customers. Section 31 (RCA conforming) amends AS 42.05.711, Public Utilities and Carriers and Energy Programs, Alaska Public Utilities Regulatory Act, Exemptions, to exempt a pipeline subject to regulation under 42.08 from regulation under 42.05. Section 32 (RCA conforming) amends AS 42.06, Public Utilities and Carriers and Energy Programs, Pipeline Act, by adding a new section to article 7 exempting a pipeline subject to regulation under 42.08 from regulation under 42.06. 3:42:23 PM MS. DELBRIDGE elaborated on Section 30, explaining that the provisions are like a pre-approval process, which more and more utilities are shifting towards. For example, when embarking on its extensive Southcentral Alaska power project, Chugach Electric Association, Inc. sought pre-approval from the RCA for that expenditure so the utility would know the money it invested in these upgrades and new facilities would be "certified" as things the RCA knew needed to happen and that the utility could pass on [to consumers]. Similar to this was the Cook Inlet Natural Gas Storage Alaska, LLC (CINGSA) facility, where the RCA essentially granted utilities pre-approval so they would know that if they paid for storage the expense could be passed on to consumers. Under Section 30 a contract between a utility and AGDC can include a covenant that the public utility will be able to recover its costs in the rates charged to consumers. This is a good backstop for protecting consumers, as well as protecting the electric and gas utilities that will hopefully be participating in this pipeline. 3:45:00 PM REPRESENTATIVE TUCK inquired whether this proposed structure is identical to an existing gas utility. MS. DELBRIDGE replied the structure is very different. The RCA currently regulates gas or other public utilities under AS 42.05, Public Utility Regulation. The RCA can also regulate pipelines under AS 42.06, the Pipeline Act, which addresses oil pipelines or common carrier pipelines. Thus, SSHB 4 creates AS 42.08 for contract carrier in-state gas pipelines. Section 30 of the bill is the interface between this new structure and the way the RCA already regulates public utilities for tariff rates that can be passed on to consumers. 3:46:01 PM REPRESENTATIVE TUCK posed a scenario in which ENSTAR purchases gas from a supplier that is shipping on this pipeline. He asked whether RCA will have jurisdiction over this purchase. MS. DELBRIDGE responded the RCA will have jurisdiction over all shipping contracts on the AGDC pipeline. If ENSTAR procures a supply of gas from a producer in Cook Inlet, the RCA does not necessarily have to approve that supply contract, but the RCA does approve the second part where ENSTAR gets the gas to its customers. When, in delivering gas to its utility customers, ENSTAR looks to recover its costs of getting the gas in the first place, the RCA must go by the best information that ENSTAR and the producer had a reasonable agreement for that. ENSTAR might ship gas on the pipeline or it might buy gas that was shipped by someone else on the pipeline, so its contract might not be with AGDC for shipment. However, if ENSTAR has a related contract, SSHB 4 allows another level of RCA review of those contracts so the utility has assurance that it will be able to cover those costs later. 3:47:46 PM REPRESENTATIVE SEATON charged that the RCA's gas distribution regulation is not at all transparent. He said the RCA does not seek to limit costs and many times the tariffs are agreed to by stipulation, thereby preventing the public from getting the background information from the RCA. Two cities he is dealing with are having this problem with gas distribution systems, he related. Two years ago there was $1.21 in unallocated labor costs per foot of line being put in, which increased to $21.00 the next year, but backup and justification information cannot be accessed because the tariff was adopted by stipulation. He urged a provision be put into SSHB 4 requiring that background information for stipulated tariffs be made publically available and maintained by the RCA. Rather than regulating and looking at the costs as it is supposed to do, the RCA acts like an adjudicatory authority. When one utility is objected to by another, the lawyers argue it out in front of the RCA and the RCA makes a decision, but all the background material then becomes confidential and is held by those separate companies. He said he wants to ensure that this same system is not put in place [under SSHB 4] because it is a way for data that is supposed to be public to be hidden by the RCA process. Given SSHB 4 is a work in progress, it must be ensured going forward that if the public has questions about those contracts or distribution of that gas there is a way to find it. Clear criteria must be developed that things must be maintained transparently in the new RCA regulations. 3:51:24 PM REPRESENTATIVE OLSON inquired whether anyone from the RCA is online. CO-CHAIR SADDLER replied there is not today but the plan is to have someone from the RCA talk to the committee at some point. MS. DELBRIDGE stated the Department of Law attorney for the RCA, Stuart Goering, is following the hearings and paying close attention, and would be glad to answer questions at the appropriate time. 3:52:15 PM MS. DELBRIDGE, continuing the sectional analysis, explained that Section 33 lays out the new structure for regulating an in-state natural gas pipeline. She paraphrased from the sectional analysis [original punctuation provided]: Section 33 (RCA natural gas pipeline contract carrier) adds a new chapter to AS 42, Public Utilities and Carriers and Energy Programs, to create Chapter 08, In-state Pipeline Contract Carrier. Chapter 08 applies to an instate natural gas pipeline providing contract carriage, and exempts an in-state natural gas pipeline subject exclusively to federal jurisdiction. House Bill 4 provides for a new category of gas pipeline carriage, contract carriage, and includes a new regulatory framework for a contract carrier gas pipeline. The new 42.08 is a shift from traditional cost-based regulation, and directs the Regulatory Commission of Alaska to instead evaluate whether negotiated contracts are fair and reasonable. Checks and balances are included to set basic rules ensuring fair and open processes; to promote exploration and development of Alaska's gas basins; to protect the public welfare; and to require heightened scrutiny for contracts entered into by affiliated parties. MS. DELBRIDGE noted this is the only place in this regulatory structure in which special qualifications are included just for AGDC. She continued paraphrasing [original punctuation provided]: Sec. 42.08.010, Application of chapter; exemption, applies this chapter to an instate natural gas pipeline providing service as a contract carrier. Exempts an instate natural gas pipeline subject exclusively to federal jurisdiction. Sec. 42.08.020, Qualification of the Alaska Gasline  Development Corporation; findings, determines that AGDC is financially and managerially fit, willing and able to provide service under 42.08. States that an AGDC pipeline is required by public convenience and necessity. Directs the RCA to determine whether any entity applying under 42.08 is technically fit, willing and able. The findings made on behalf of the RCA in this section are findings that the RCA usually needs to make in issuing a pipeline building permit - a Certificate of Public Convenience and Necessity. The advance findings are not valid for an applicant other than AGDC. For AGDC and any applicant, the RCA will need to determine whether the entity is technically able to build the project and provide the service proposed. 3:54:29 PM MS. DELBRIDGE moved to review of the general instructions to the RCA in Section 33, paraphrasing [original punctuation provided]: Sec. 42.08.220, General powers and duties, provides enabling direction for the RCA under 42.08. Requires permits for construction, interconnections, expansions and abandonment. Enables the RCA to intervene in disputes that where not accounted for in contractual dispute resolution mechanisms, and that threaten the public safety and welfare. Prohibits the RCA from requiring rates or tariff regulations, except as provided in the chapter, and from conducting further review of contracts approved under 42.08. 3:56:35 PM REPRESENTATIVE SEATON understood AGDC will be negotiating tariff rates with particular utilities. He asked whether "prohibits the RCA from requiring rates or tariff regulations" means the RCA really has no authority on requiring those tariffs or rates. MS. DELBRIDGE responded a regulatory body can regulate using a cost-based approach or can regulate contracts that use a negotiated rate type approach. Typically, in some cases, the RCA has been able to decide what rates might be. Because SSHB 4 sets up the structure for an in-state gas contract carrier pipeline, it is trusting to contracts to create rates that are reasonable for the parties entering the contracts. Thus, the RCA would no longer need to go in and make the rates. 3:57:52 PM REPRESENTATIVE SEATON posed a scenario in which AGDC is not the full financial contributor and the pipeline is built primarily by private enterprise. He asked whether in this situation the RCA would have input on the rate of return. He further asked what the RCA's duty and power would be in looking out for the public interest in those negotiated rates. MS. DELBRIDGE answered the public interest can be defined as, one, the people using gas provided by public utilities or, two, the people shipping on an AGDC pipeline, i.e. AGDC's customers, which may or may not be gas that goes to public utilities. For a shipper with a contract for gas that is not going to a public utility, this chapter essentially says that as long as there was no duress or fraud or an affiliate relationship between those parties, then that contract is just and reasonable because two people said "this is the price we are willing to sell/this is the price we are willing to pay". If a public utility is involved, there is this additional standard of review that essentially requires the RCA to give a deeper look to the pre- approval that the utility will be able to pass that on to its customers. 3:59:39 PM REPRESENTATIVE SEATON noted that with FERC there is a generally approved rate of return. However, given SSHB 4 is for contract carriage, he asked whether there is anything in the bill that prevents a negotiated rate of return of 25 percent. MS. DELBRIDGE replied it will be seen in later discussion that the carrier must start with a recourse rate, which is a rate available to any shipper on the pipeline as a starting point for negotiation. The recourse rate is supported by a cost-of- service study that includes a rate of return. The RCA standard of review includes making sure that negotiations from that [starting] recourse tariff are done so in a reasonable way. 4:00:51 PM CO-CHAIR SADDLER understood the starting point is based on a reasonable rate of service, but inquired whether there is anything to prevent a contractual agreement between the shipper and the pipeline owner from having a generous rate of return. MS. DELBRIDGE responded [the shipper] entering into the contract will be able to see the rate of return being proposed by the carrier. To some extent, it is highly unlikely that [a shipper] would sign a contract that creates a 20 percent rate of return for the carrier. She said SSHB 4 provides a much higher level of scrutiny for contracts that are between affiliates; it essentially reverts to the RCA's standard level of review under AS 42.06, Pipeline Act, which goes into a full rate-based study. 4:02:37 PM TINA GROVIER, Attorney, Natural Resources and Energy Law, Birch Horton Bittner & Cherot, Counsel to Alaska Gasline Development Corporation (AGDC), confirmed Ms. Delbridge's aforementioned statement to be correct. 4:02:57 PM REPRESENTATIVE SEATON requested Ms. Grovier to re-state the issue and elaborate on why Ms. Delbridge is correct. MS. GROVIER understood the concern is about affiliated entities and whether there is a tool in SSHB 4 for the RCA to take a closer look at that. She directed attention to page 45, lines 3-8, which state that if the parties are affiliated and it is not an arms-length transaction, then "the commission shall determine whether the precedent agreement or related contract is just and reasonable using the standards normally applied under AS 42.06.140", which is the existing RCA common carriage statute that regulates pipelines. 4:04:37 PM MS. DELBRIDGE requested Ms. Grovier to address whether the rate of return that a pipeline carrier creates for itself is limited, or can the carrier sign contracts giving itself a 20 percent rate of return that the RCA has no review over regardless of whether the parties are affiliated. MS. GROVIER answered that, as she understands it, the recourse tariff being filed will specify the rate of return in the cost- of-service study. If the RCA is reviewing that recourse tariff, that is the opportunity where that would be reviewed. 4:05:33 PM REPRESENTATIVE SEATON understood the tariff is to pay back the people who have firm shipping contracts. If that is the case, will they be receiving a return on that investment, he asked. MS. DELBRIDGE replied the pipeline will do its work over the next few years and before recruiting shippers it will do a cost- of-service study that contains a massive list of things, including its rate of return opportunity. The study is the foundation for the rate and the rate is part of the tariff. Also part of the tariff is all the other terms and conditions of service. For some shippers, having a greater volume available is more important than the rate, so there is room to negotiate some of the terms. The tariff, to start with, is called a recourse tariff. This recourse tariff goes to the RCA and all potential shippers, providing a starting point that is eligible for everybody to play on. Because no one wants to pay more than is reasonable, the cost-of-service study must support the elements in the tariff. During the open season the carrier is asking shippers to buy space in the pipeline. The recourse tariff is the starting point and the fine points are then negotiated because different shippers have different priorities; for example, a shipper may be willing to have its service interrupted at times in return for a better rate. The hope is that the negotiations end up with a precedent agreement and that precedent agreement would include the negotiated rates and the negotiated terms and conditions. Those precedent agreements are the contract and that contract has some conditions attached to it, such as the carrier needs to ensure its project is within a certain cost range, must start operations by a certain date, must obtain certain permits, or any number of things. For the next year or two after signing the precedent agreements and filling up the pipeline during open season, work is begun on resolving the conditions. Once the conditions have been met and the financing is there, the precedent agreements are turned into firm transportation agreements and that is when the project is sanctioned and construction begins. 4:10:07 PM REPRESENTATIVE SEATON said the concern he is trying to get at is when the shippers are actually the financiers or the owners of the pipeline or owners of major pieces of the pipeline, the Trans-Alaska Pipeline System (TAPS) being an example. He said he wants to ensure that the structure of SSHB 4 will ensure the tariffs are as low as they can be for generating a generous return to the financiers. MS. DELBRIDGE understood the concern and said she will point out where those extra levels of precautions have been made as she goes along in her review. She acknowledged the possibility for shippers to be potential owners, as with any pipeline, and said the bill has additional backstops for this. That is also where the firewalls come into play, she continued; for example, "BP Producer" and "BP Pipeline Company" cannot give themselves unfair advantages either. If the pipeline is being financed through revenue bonds, the people rating those bonds and then financing the pipeline are going to take a very, very good look at these contracts to ensure it is a legitimate investment for them to make; part of that is whether the financier has a chance to earn a reasonable rate of return. 4:12:50 PM MS. DELBRIDGE, responding to Co-Chair Saddler, said Section 42.08.220 is on page 29 of the bill. Resuming her review, she paraphrased from the sectional analysis [original punctuation provided]: Sec. 42.08.230, Commission decision-making procedures, directs the RCA to appoint a panel to consider and decide matters under 42.08, and to expeditiously adjudicate matters. Sec. 42.08.240, Publication of reports, orders,  decisions and regulations, is the standard RCA direction for publishing reports, orders, decisions and regulations. Sec. 42.08.250, Application of Administrative  Procedure Act, is the standard RCA exemption from Administrative Procedure Act adjudication procedures. Instead, the RCA's adjudication procedures would apply. The rest of the Administrative Procedures Act still applies to regulations adopted by the RCA. Sec. 42.08.260, Annual report, requires the RCA to include in its annual report activities related to 42.08. Sec. 42.08.300, Open seasons, sets rules a carrier must follow when holding an open season. Provides parameters for holding an open season to ensure fairness and openness for all interested potential shippers, including advance notice. Requires a carrier to hold an open season for pipeline expansion when the carrier has received requests for firm service from potential shippers that would enable a commercially reasonable expansion. Provides that expansions may not violate the terms of AGIA. Allows a carrier to make pre-subscription agreements before an open season begins. Requires a carrier to award firm transportation service without undue discrimination or preference. 4:14:02 PM MS. DELBRIDGE elaborated that the advance public notice required by Section 42.08.300 must include the recourse tariff, the proposed form the agreements will take in the end, and information about such things as pipeline route, capacity, operating pressures, and quality specifications. The notice must also be clear as to how the carrier is going to allocate capacity to the bidders. Any pre-subscription agreements before an open season begins would still be based on the recourse tariff. 4:16:06 PM CO-CHAIR SADDLER inquired who would make the determination that an expansion is commercially reasonable. MS. DELBRIDGE answered the determination would be presented through the RCA. If there was any question as to whether the opportunity was commercially reasonable, an arbitrator would be there to decide that. 4:16:32 PM MS. DELBRIDGE turned back to paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.310, Transportation service, provides that firm service can only be made available through presubscription agreements or open seasons. Requires a carrier to offer a recourse tariff with rates determined on a cost-of-service basis. Allows that negotiated firm transportation rates may be different from recourse rates. Requires a carrier to provide interruptible service in capacity not used in firm service. MS. DELBRIDGE explained a carrier must provide a recourse tariff developed from a cost-of-service basis. The carrier must be able to roll in rates for expansion, so long as resulting rates for the current shippers do not exceed the maximums under their contracts. The carrier must file the recourse tariff with the RCA. Starting with that recourse rate, AGDC and each potential shipper can negotiate the rates, the terms, and conditions for that given contract. She said this section also requires that things be done fairly. So, AGDC can negotiate, but it has to do so keeping in mind that that next level of RCA oversight is going to ensure that these negotiations were done fairly and that they are responsible and non-discriminatory. The earliest contracts must include a dispute resolution procedure. Section 42.08.310 also requires the carrier to provide interruptible, maybe short-term service, for any capacity that is not being used in firm service. For example, gas and oil fields might go through seasonal shutdowns for maintenance, leaving capacity available that could be filled during that shutdown period. 4:18:58 PM REPRESENTATIVE TARR, returning to Section 42.08.300, asked how "holding an open season to ensure fairness and openness for all interested potential shippers" and "pre-subscription agreements" work together to ensure fairness for all interested parties. MS. DELBRIDGE replied a carrier will be negotiating privately with different shippers, whether in a pre-subscription agreement or in an open season, and both opportunities must start with that recourse tariff. The contracts coming out of these will all be managed the same way - as precedent agreements going forward. 4:20:00 PM REPRESENTATIVE SEATON inquired whether the negotiated tariffs in the contracts are generally lower than the recourse rate based on cost-of-service. MS. DELBRIDGE responded she thinks it might be the opposite, but deferred to a representative from AGDC for an answer. 4:20:35 PM DARYL KLEPPIN, Manager, Commercial Team, Alaska Gasline Development Corporation (AGDC), Alaska Housing Finance Corporation (AHFC), Department of Revenue (DOR), understood the question to be whether a rate negotiated off the recourse tariff could be lower than the recourse tariff. He said the answer would be yes, depending upon other terms and conditions as there are a lot of other issues besides the rate that a [shipper] may find important and may be willing to pay more or less depending upon those terms and conditions. 4:21:14 PM REPRESENTATIVE SEATON pointed out that if negotiations can be for a tariff that is higher than a recourse rate that is based on cost of service and a fair rate of return, then that will be a cost to the consumers or whoever is on the other end of the pipe. He asked whether the potential here is for a higher rate or a lower rate and said it raises some concern if it is higher than the cost-of-service tariffs with no limitation. MS. DELBRIDGE answered she thinks this is getting to the review of certain contracts by the RCA in which the RCA looks at how far above or below that recourse tariff the parties went and how that rate change was compensated for with other terms and conditions that are of value. For example, a utility shipper might feel that a long-term supply of gas is worth a little bit more than having less gas than it thinks it is going to need and paying less. There is a value in having certain terms and conditions met, she said, the price is not everything. 4:23:00 PM REPRESENTATIVE SEATON stated he is trying to understand why a shipper would bid for a higher tariff, although a shipper might bid for a higher price from the seller. He suggested getting together for further explanation later. MS. DELBRIDGE agreed to do so. CO-CHAIR SADDLER surmised the recourse rate sets the benchmark from which to negotiate depending on other terms and conditions. MS. DELBRIDGE replied correct and added that it is fairly common to let the rate fluctuate a little bit because a benefit is being gained in the terms and conditions. CO-CHAIR SADDLER commented the provisions are that the contracts are reviewable. 4:23:58 PM MS. DELBRIDGE continued her review, paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.320, Review of certain contracts by the  commission, requires a carrier to submit all precedent agreements to the RCA; precedent agreements with other than a public utility may be kept under seal. The RCA has 180 days to approve or disapprove precedent agreements as just and reasonable. Sets the standard for determining if a contract is made at arm's length and allows additional RCA scrutiny of contracts made between affiliated parties that are not substantially similar to transactions made between unaffiliated parties. Approved contracts are not subject to further review. MS. DELBRIDGE noted Section 42.08.320 has a decision tree: the RCA looks at the contract and if it was done at arm's length between two parties, this structure says that that contract is just and reasonable unless the RCA finds that there was some kind of unlawful activity or fraud. If a contract was made at arm's length it is good to go. However, it must be decided what makes it arm's length. Under SSHB 4, a contract is arm's length if it incorporates the recourse tariff. 4:25:23 PM CO-CHAIR SADDLER inquired whether a contract below the recourse rate will automatically be considered not at arm's length. MS. DELBRIDGE responded such an agreement would be considered as not meeting that standard of incorporating the recourse tariff. [Citing from page 44, lines 27-31, and page 45, lines 1-13 of SSHB 4], she said an agreement that does not include the recourse tariff would be considered arm's length if it is between two state-owned parties or between private parties that are not affiliated. An agreement between two affiliates would be considered arm's length if substantially similar to contracts made between unaffiliated parties. An agreement between affiliates that is not substantially similar to other contracts would not be at arm's length, so the RCA would conduct a higher level of review of that contract. 4:26:25 PM CO-CHAIR SADDLER asked who within the RCA would make these evaluations, decisions, and judgments. MS. DELBRIDGE believed the RCA as a whole would use its existing procedure, but said she is unsure whether that includes the whole commission or an administrative law judge. Often the commission begins hearing a matter and then delegates the follow through to an administrative law judge. 4:26:57 PM REPRESENTATIVE P. WILSON read page 44, lines 24-26 of the bill, which state "a contract that is approved or considered approved under this paragraph and the associated firm transportation agreement are not subject to further review by the commission." She noted this is stated more than once and asked why. MS. DELBRIDGE replied it was important to structure a regulatory framework that honored that contracts could be made between two parties to ship gas on a pipeline. Having a third party that can keep coming back to review that contract negates the concept that contracts freely entered into by people that are not under fraud are fair. 4:27:51 PM MS. DELBRIDGE resumed the sectional analysis, reiterating that if a contract is not at arm's length, the RCA will go into a much deeper level of review and will use the same standards that it would apply in reviewing a contract under the Pipeline Act, which is existing regulation for common carrier pipelines, allowing the RCA to actually make just, fair, and reasonable rates or to require those. She said Section 42.08.320 is clear that the carrier must provide the RCA with a cost-of-service study so that the RCA actually has the tool it needs to do this extra level of review. The section further provides that when contemplating approving or disapproving these contracts, the RCA must consider the consequences of failing to approve a contract. 4:29:09 PM MS. DELBRIDGE moved to Section 42.08.330, paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.330, Contract carriage certificate, requires a certificate of public convenience and necessity (CPCN) for a carrier to construct a pipeline and to transport gas. The RCA has 180 days to issue a CPCN once application is made, providing that the applicant is found fit, willing and able to perform the services proposed. The RCA may attach conditions to and amend, suspend or revoke a CPCN. Operating authority may not be transferred and service may not be abandoned without RCA approval. MS. DELBRIDGE elaborated that the CPCN describes the service area and the scope of operations that are allowed. The RCA must do a full course of fit, willing, and able if the applicant is someone other than AGDC. She allowed the 180 days for the RCA to issue a certificate is a tight timeline, but said it is reasonable and the point is to not delay a project with overly long timelines. The RCA may include terms and conditions in the CPCN if those mutually benefit both the carrier and the public. If a complaint about the service being provided is filed, the RCA can modify, suspend, or revoke the CPCN if there is good cause. 4:31:11 PM REPRESENTATIVE JOHNSON inquired whether it is automatic approval should the RCA not act within 180 days. MS. DELBRIDGE responded she does not see that standard in the bill language. REPRESENTATIVE JOHNSON asked [what happens if the RCA does not act within 180 days]. MS. DELBRIDGE replied she does not know how to answer the question. In other instances in SSHB 4, she noted, the failure to approve within a certain timeframe is inherent approval. 4:32:06 PM REPRESENTATIVE JOHNSON inquired of the sponsor whether this is something that should be put in the legislation because there is no motivation for the RCA to do it unless there is automatic approval. REPRESENTATIVE HAWKER responded by asking Ms. Delbridge whether the question is driven by page 45 of the bill, lines 28-29, which state that "within 180 days after receiving an application ... a contract carriage certificate shall be issued ... if the [commission] finds ... the applicant is fit, willing, and able ...." Regarding what happens if the RCA does not act within that timeframe, he asked Ms. Delbridge whether page 46 of the bill, lines 4-6, provide that if the commission fails to find the applicant fit, willing, and able, the application must be denied. MS. DELBRIDGE confirmed that they do. 4:33:24 PM REPRESENTATIVE JOHNSON expressed his concern that in a situation where the RCA did not want to grant a permit, the commission could stall past 180 days and it would be automatically denied. He said he would prefer language that grants automatic approval of the application if the RCA stalls past 180 days because he wants to build pipelines, not give people reasons not to build pipelines. MS. DELBRIDGE answered there are some other instances where [the sponsors] have incorporated that concept. Speaking for the sponsors, she said they would like to look at doing so. 4:34:26 PM MS. DELBRIDGE returned to the sectional analysis, closing her review of Section 42.08.330 by stating that the rest of this section is housekeeping. She continued paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.340, Filing requirements; public  inspection, requires an instate natural gas pipeline carrier to file all recourse tariffs, rules, regulations, terms and conditions pertaining to service, and all contracts with shippers. Requires changes in tariff rates/rules and service conditions to be filed with the RCA. Sec. 42.08.350, Uniform system of accounts, requires a carrier regulated under 42.08 to maintain records and accounts in accordance with the uniform system of accounts. Sec. 42.08.360, Expansion; dispute resolution, enables contracts to provide for expansion, unless an expansion would violate the terms of the Alaska Gasline Inducement Act. Requires contracts to include procedures for resolving disputes. Sec. 42.08.370, Regulatory cost charge, implements the standard RCA assessment of a user fee on regulated entities; includes a cap and directs administration of the user fee. Sec. 42.08.380, Effect of chapter on taxes and  royalties, declares that nothing in 42.08 will change the calculation of production taxes or of royalties due the state. 4:35:11 PM MS. DELBRIDGE elaborated that Section 42.08.380 is special to SSHB 4. She said that just because the RCA and the carriers have determined a cost of transportation, the bill does not take away the ability of the Department of Revenue and the Department of Natural Resources to determine their own reasonable transportation costs for purposes of a production tax or royalty. CO-CHAIR SADDLER surmised Ms. Delbridge to be saying the bill is not setting a precedent. 4:35:48 PM REPRESENTATIVE SEATON requested clarification about whether the pipeline would be subject to property taxes. MS. DELBRIDGE replied that Section 42.08.380 is strictly about oil and gas production taxes and royalty valuation of the gas. She requested the question be held for the appropriate section. 4:36:42 PM MS. DELBRIDGE continued her review, paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.400, Public records, requires RCA records be available to the public, except as provided by law. Precedent agreements will be kept confidential. Firm transportation and other contracts will be public, except for information that the carrier and the RCA agree could cause competitive harm. 4:37:17 PM REPRESENTATIVE SEATON observed there are several places in the bill regarding public information and that it can be viewed at the RCA or by pay copying costs. He noted, however, that almost everything is now submitted electronically. He asked whether this could be re-structured so that the material is required to be provided to the public electronically. MS. DELBRIDGE allowed that is a good point and said she will consult with the RCA about what its existing regulations are and whether that is already provided for. If it is not, she said she will try to find a way to make electronic filing work. CO-CHAIR SADDLER noted that could be added to the questions for the RCA when it comes [before the committee]. 4:38:20 PM MS. DELBRIDGE resumed paraphrasing from the sectional analysis [original punctuation provided]: Sec. 42.08.410, Investigations, allows the RCA to investigate matters in 42.08, and maintains the role of the Department of Law's Regulatory Affairs and Public Advocacy section. Sec. 42.08.510, Designation of service agents, requires an instate natural gas pipeline carrier to file a named, permanent resident as its agent (standard RCA provision). Sec. 42.08.520, Effect of regulations, states that regulations adopted by the RCA under 42.08 have the effect of law (standard RCA provision). Sec. 42.08.530, Judicial review and enforcement, makes RCA final orders subject to standard RCA judicial review, except in the circumstances set forth in HB 4, Section 13, addressing the development, construction and initial operation of a natural gas pipeline by AGDC. Sec. 42.08.540, Joinder of actions, allows appeals to be joined under applicable court rules (standard RCA provision). Sec. 42.08.900, Definitions, defines terms standard to the RCA (commission, commissioner, record) and includes HB 4 terms (instate natural gas pipeline, instate natural gas pipeline carrier). 4:38:56 PM REPRESENTATIVE TARR requested further elaboration of Section 42.08.530. MS. DELBRIDGE responded Section 42.08.530 essentially says that final orders of the RCA are subject to judicial review, except as provided for under AS 38.35.200, which is the place earlier in the bill [Section 13] that limits judicial review. If an appeal is not taken from a final order of the commission within 10 days after an investigation, the commission can apply to the superior court for enforcement of the order of the commission. That is essentially a standard RCA provision that lets the commission have a little bit of an outlet for enforcing its decisions. 4:39:46 PM CO-CHAIR SADDLER inquired whether this issue was addressed in the responses included in the committee packet. MS. DELBRIDGE answered the packet should have a response from Legislative Legal Services related to judicial review and specifically to Representative Tarr's previous question as to whether the legislature can limit a court's jurisdiction. CO-CHAIR SADDLER noted that that is a February 12, [2013], letter from Don Bullock to Representative Hawker. 4:40:40 PM REPRESENTATIVE SEATON understood the property tax exemption under Section 34 is only for the duration during construction and that the private sector would need to pay property taxes regardless of the ownership structure in a pipeline with AGDC. MS. DELBRIDGE responded to Representative Seaton by paraphrasing from the sectional analysis [original punctuation provided]: Section 34 (property tax exemption) adds a new subsection to AS 43.56.020, Revenue and Taxation, Oil and Gas Exploration, Production and Pipeline Transportation Property Tax, Exemptions, exempting an AGDC-owned or financed project from state and local property taxes during construction. This is one way the state can help an AGDC project succeed. Waiving property taxes for a period of time will help keep construction costs down during a highly risky time in pipeline development. Cost savings during construction would be reflected in the tariffs paid for gas shipped on an AGDC line. 4:41:44 PM MS. DELBRIDGE continued paraphrasing from the sectional analysis [original punctuation provided]: Section 35 (repealer) repeals 11 statutes. · Repeals AS 36.30.850(b)(45) Public Contracts, State Procurement Code, Application of this chapter, a prior exemption that applied to an AHFC pipeline. · Repeals AS 38.34.030, Public Land, In-State Natural Gas Pipeline, Joint In-State Gasline Development Team; 38.34.040, Duties of the Development Team; 38.34.050, Cooperation and access to information; and 38.34.060, Conflicts of interest, all of which were part of [House Bill] 369 in 2010 and relate to the Joint In- state Gasline Development Team. · Repeals AS 41.41.030, Public Resources, Alaska Natural Gas Development Authority, Term of office; 41.41.040, Removal and vacancies; 41.41.050, Quorum and voting; 41.41.080, Legal counsel; 41.41.100, Budget; and 41.41.990(4), Definitions, all related to the transition of ANGDA [Alaska Natural Gas Development Authority] to a marketing role and to an AGDC subsidiary. 4:43:16 PM Section 36 (repealer) repeals Section 1 of 2002 Ballot Measure No. 3, the findings of which are no longer necessary with ANGDA's revised authority. Section 37 (transition and intent) expresses the legislative intent that the existing state right-of- way lease between AGDC and DNR is amended to reflect the contract carrier covenants in HB 4 (the Alaska Constitution bars the Legislature from passing laws that apply retroactively to contracts in place). Also expresses intent for a smooth transition for AGDC from its status as a subsidiary of AHFC, to an independent corporation. Specifically, this section includes: · The intent is that this repositioning does not interfere with, delay or disrupt AGDC's work. · The intent that the governor should appoint the new AGDC board within 90 days of the effective date. · The AHFC board will remain in place until a new board is appointed; and will cooperate with the new board in a smooth transition. · The intent is that the transition is a change in placement only, and will not require dissolving AGDC and creating a new corporation. · The intent is that AGDC, including employees and directors, continue in-place while the boards are transitioning. This is not explicitly stated but rather is implied. Section 38 is revisor's instructions Section 39 sets an immediate effective date. 4:45:45 PM REPRESENTATIVE SEATON drew attention to page 5, second question and answer, of the [undated] letter to the co-chairs from Representative Hawker [answering questions from the 2/4/13 and 2/6/13 committee meetings]. He recalled committee discussion about timelines for release of confidential information and noted the answer in the letter states that the bill "does not restrict the confidentiality by time, this information may be of public benefit once a pipeline is operational." He said what was being looked for with the question was having timelines for release of information that no longer needs to be held confidential. He requested that such an answer be prepared and brought to the committee for incorporation into the bill. 4:47:13 PM CO-CHAIR SADDLER requested Representative Seaton to re-state what information he is requesting. REPRESENTATIVE SEATON read the first sentence in Representative Hawker's answer: "HB 4 allows for certain information to be held confidential, and does not set time limits for that protection." However, Representative Seaton continued, the question posed was whether a provision can be put into the bill for releasing confidential information once it no longer needs to be held confidential. For example, release of that confidential information after the pipeline becomes operational or at certain other time periods identified by AGDC. 4:48:53 PM The committee took a brief at-ease. 4:49:05 PM FRANK RICHARDS, Manager, Pipeline Engineering & Government Affairs, Alaska Gasline Development Corporate (AGDC), Alaska Housing Finance Corporation (AHFC), Department of Revenue (DOR), , at the request of Co-Chair Saddler, responded to Representative Seaton's question. He explained that a variety of items would be deemed confidential, such as information in commercial agreements, information held by third party or other state entities that has been deemed confidential and that AGDC would gain access to through the bill's provisions, and information that AGDC acquires through its own work or has contracted for that will be held confidential. As identified in the response [on page 5], commercial terms in precedent agreements, for example, would be released after going through the RCA process to the extent that the individual shippers did not hold commercial interest or wanted that to be held confidential. A specific listing and a timeframe for when that information will be released would be hard to ascertain at this time. Currently, AGDC holds information that it acquired from the predecessor of the project, ENSTAR, and that information is held confidential by AGDC as it works this process forward until the point of actually constructing and completing the process. Then it will have been used by AGDC as a public entity and it would then have gone into the public realm. When accessing information held by another department, AGDC is unable to control the release of that information. Mr. Richards offered to address specific information that Representative Seaton would like and provide a timeframe that AGDC thinks it might be able to release it. 4:51:09 PM REPRESENTATIVE SEATON noted that a lot of information on this project is confidential and said he thinks the public's confidence in the process becomes much greater if it is known that information not required to be held confidential will be released at some point, such as when the pipeline becomes operational. He agreed to discuss this issue further to see if specific areas can be identified. MR. RICHARDS said he would be glad to talk with Representative Seaton and with AGDC's commercial manager about which specific commercial issues would likely be held confidential through the precedent agreements. He added that AGDC will also be acquiring information as a state entity that will be held as confidential up to a certain point and, once released, will be a benefit to the citizens of the state. 4:53:01 PM CO-CHAIR SADDLER held over SSHB 4, saying it will be taken up again on 3/15/13. He then recessed the meeting to a call of the chair.