SB 121-RIGHT-OF-WAY LEASING ACT    CHAIRMAN JOHN TORGERSON called the Senate Resources Committee meeting to order at 3:47 pm and announced SB 121 to be up for consideration. MS. ANNETTE KREITZER, Staff to Senator Leman, sponsor, of SB 121 said that commercialization of North Slope gas is a legislative priority. She explained SB 121 provides certainty to any person with rights-of-way under the state's Right-of-Way Leasing Act. She explained: If a person files an amendment to the pipeline application, that supposes a net increase in the amount of acreage leased for the right-of-way that is 10 percent greater than the original application. That is sufficient change subjecting the amendment to all the provisions of AS 38.35. If a person files an amendment to a pipeline application that proposes changes to the design of the pipeline that would use less effective environmental or safety mitigation measures or less advanced technology than in the original application, that is a substantial change subjecting the amendment to all the conditions of AS 38.35. When the state calculates whether or not additional state acreage must be part of the 10 percent calculation, it must exclude acreage attributable to an amendment of an existing right-of-way across federal lands originally issued by the federal government whether or not the state or the federal government administers the land. Likely, that would involve an applicant aligning with the federal and state rights-of-way. The state must also not count land under a federal right-of- way grant that has been transferred to the state for its administration. Section 2 is a conforming amendment to the commissioner's analysis and public hearing section of the Right-of-Way Act. SB 121 continues the public process, but does not [indisc]. MR. JIM EASON, Foothills Pipe Lines Ltd., testified in support of SB 121 with the following: Let me begin by describing Foothills and summarizing its role in efforts to commercialize Alaska's North Slope gas reserves. Foothills is jointly owned by Westcoast Energy Ltd. and TransCanada PipeLines Limited, the two major players in the Canadian gas pipeline business. Canadian gas accounts for almost 20 percent of all gas consumed in the United State and all of that gas currently moves through pipelines owned in whole or in part by TrnasCanada and Westcoast. Foothills corporate mission is very specific - to build and operate the Alaska Natural Gas Transportation System, better known as the Alaska Highway Pipeline Project. Foothills was a leader in this project, which was conceived twenty-five years ago and we remain just as committed today to completing that project. The Alaska Highway Pipeline Project was approved in accordance with the Alaska Natural Gas Transportation Act of 1976 in the U.S., the 1078 Northern Pipeline Act in Canada and the 1977 Agreement Applicable to the Northern Natural Gas Pipeline between the two countries. As approved, the Alaska Highway Pipeline Project is a 4,800-mile international pipeline project commencing at Prudhoe Bay and terminating in the Midwest and California market areas. It is important to note that the southern part of this pipeline has been constructed and is in full operation. A substantial amount of work in addition to constructing the pre-built portion of the project has been completed by the Alaska Highway Pipeline Project sponsors to date. Significantly, among other permits in the U.S. the Project holds a federal right-of-way grant issued in 1980 by the Department of the Interior's Bureau of Land Management. That grant does not expire until December 2010 and may be renewed at the request of the Project sponsors. On state side, the Project has a pending State of Alaska right-of-way lease application. Recently, we have initiated discussions with state officials toward completing the pending application. I would like now to turn to our specific comments on SB 121. It responds to a potential problem that has been identified in Alaska state law affecting applications for state right-of-way leases. Specifically, AS 38.35.050(c) currently provides that "Any amendment to an application is subject to all provisions of the Right-of-Was Leasing Act applying to the original application." The potential problem arises from the fact that the words "substantial change" as applied to an amended right-of- way lease application are not currently defined in statute. As a result, should any party desire to delay or obstruct the issuance of a state right-of-way lease, they are free to argue that any change to an application after it is submitted constitutes a substantial change. Without clear policy direction from the legislature, administrative appeals and litigation over which changes are substantial are likely, with the result being that the courts ultimately get to decide the issue on a case- by-case basis. SB 121 proposes a definition for substantial change that is intended to provide clear guidance for all parties of interest, including applicants, the reviewing and authorizing agencies and the public. As fully explained below, Foothills supports Senator Leman's efforts to amend AS 38.35.050(c) to avoid ambiguity and to minimize the risk of specious litigation by providing clear standards for determining whether or not changes to a right-of-way lease application are substantial. We believe that defining substantial change in the context of an amendment of an application will provide several important benefits for all projects that must procure a right-of-way lease across state lands, as well as for the State of Alaska. These benefits include: · More timely processing of lease applications, especially where much work has already been done in support of an application; (Typically, an application for a major pipeline can take as much as a couple of year or longer.) · Increased certainty; and · Reduced potential of delay in authorizing and constructing projects of benefit to all Alaskans. Under Senator Leman's proposed language, an amendment to an original application would constitute a substantial change in the application under either of two circumstances: · If the amendment proposes a least a 10 percent net increase in the amount of state acreage to be leased for the right-of -way when compared to the amount of acreage in the original application; · If the amendment proposes a change in the design of the pipeline that would use less effective environmental or safety mitigation measures or less advanced technology than proposed in the original application. We believe this approach to defining substantial change is compatible with the state's goals as set out in its Right-of-Way Leasing Act, that is, that "the development, use, and control of a pipeline transportation system be directed to make the maximum contribution to the development of the human resources of this state, the increase in the standard of living for all of its resident, the advancement of existing and potential sectors of its economy, the strengthening of free competition in its private enterprise system, and the careful protection of its incomparable natural environment." Equally important, we believe that incorporation of these proposed definitions will not diminish meaningful agency and public review of an applicant's amended right-of-way lease application. The proposed amendment would further define how an increase in state acreage would be calculated for the purposes of determining substantiality. Specifically, in calculating the percentage increase in acreage due to an amendment, the following would each be excluded from that calculation. First, acreage attributable to an amendment to a right-of-way grant across federal land originally issued by the federal government, whether administered by the state or federal government, would be excluded. Secondly, land subject to an existing federal right-of- way grant held by the applicant that is transferred to the state for its administration would also be excluded. We believe these exclusions to be appropriate, as they take out of the calculation land that is already subject to a federal right-of-way lease and lands that may come to be administered by the State of Alaska. Such land should be taken out of the calculation because it would not have been subject to an initial state lease application. It includes such land in the calculation of whether or not there has been a 10 percent increase in the amount of state land covered by an application would penalize unfairly those applicants that successfully procured a right-of-way grant across federal land that subsequently comes to be administered by the State of Alaska. Number 700 SENATOR ELTON said he could see many reasons for getting an amendment, for example, rerouting a pipeline through a community. If the net acreage gain on the new route is less than 10 percent, he asked if that would preclude the need to do an amendment. MS. KREITZER answered that it would not be considered to be a substantial change if it was less than 10 percent. SENATOR ELTON added, "Even though it would be a substantial change to the neighborhood." MS. KRIETZER said they had discussed this scenario with the department and Mr. Britt could speak better to the question. MR. BILL BRITT, State Pipeline Coordinator, he said that Senator Elton is correct that a rerouting of a pipeline would not be captured by the bill in front of them. CHAIRMAN TORGERSON asked if a community didn't want it, what kind of mitigation measures would they do. MR. BRITT responded that: AS 38.35 gives the commissioner a great amount of power to place stipulations on right-of-way leases to deal with a variety of public health, safety and environmental issues. So we could certainly be responsive to any concern that came out at any one process. Their normal process would be to analyze an application. Our version of a best interest finding is called a commissioner's analysis and proposed decision. We public notice the availability of that commissioner's analysis and proposed decision along with draft lease and receive comments on it through a comment period or a public hearing or both. So we can receive comments from the public very late in the process and alter the right-of-way lease in response to those. SENATOR ELTON said he imagined this would have tilted the balance back toward the company that had the right-of-way in any kind of community discussion on a pipeline reroute. MR. BRITT responded, "It's important to remember that the discussion is regarding an applicant, not an actual lessee. After a lease is executed, we are dealing with different questions. This only regards changes to an application." Number 1000 MR. EASON added that it is important to focus on the provision of what the substantial change does that they are trying to define. He explained: As the statute reads today, the undefined substantial change triggers all the provisions of the chapter, which quite literally means that you go back to square one and file a new application, not just notify people of a change in the application, and do every procedural step that's outlined in Title 38.35. This could, again, conceivably include steps that have gone on for 18 or more months with a very public process. I certainly stand to be corrected, but it was my understanding that the intent is not to limit or change public notice so that people should be aware of changes regardless of whether there are substantial changes or changes that rise to the judgment of the commissioner as requiring public notice. It's just a question of whether or not a change is substantial enough to trigger all the provisions of the chapter being required to be done again. My understanding of the example you gave of rerouting that might occur that brings a project closer or within a community, can happen in either of two ways. It can happen because an applicant has requested it or it can happen because the agencies require it. It's conceivable that an applicant proposes something that avoids all communities, but it could be determined for reasons of Fish and Game or DEC or others that the preferable route is actually closer to the community. My belief would be that under those circumstances, those kinds of changes would be publicly noticed and you would have an opportunity to discuss them and review them in the context of the application as well as the finding. SENATOR ELTON asked if this had ever been an issue to his knowledge - where someone has defined substantial change in a way that has caused economic hardship or regulator hardship. MR. EASON replied: My research of the files and I have been able to locate two instances in the Pipeline Office's administration that actually addresses this question, one is a written decision affecting not the application, but an existing conditional lease that was issued to Yukon Pacific. In that case, the application process had been completed and the commissioner had actually issued the lease. Yukon Pacific came back, as I recall, some years later, maybe a couple of years or longer, and addressed the commissioner with a revised project, which increased the pipeline pressure. I believe it increased the pipeline size. It changed the number of compression stations and it changed the location of the compression stations, but it was their belief that those were not substantial changes, because the changes actually resulted in less land being used than originally proposed, even though the system looked quite different. There's a written finding that the commissioner confirmed the calculation was the issue. If it used less acreage, even though there had been changes that in your view or others' view may very well signal substantial changes, but there weren't. I believe there is another instance with, I believe it was, Badami where two alternative pipelines were proposed, a buried pipeline and an elevated pipeline. I apologize, I can't remember which one went in which direction or whether they finally went from buried to raised or raised to buried, but my understanding is that the pipeline office determined that was a substantial change requiring all the provisions of the chapter. All that is sort of preliminary to the answer from our perspective that's probably more important. In some respects, these projects may have not have risen in profile to invite litigation and quite honestly, in our review of the statutes we were surprise that this term had been in the statute since its adoption without definition. We think that the uncertainty surrounding that is enough given the high profile nature of a project to deliver gas from Alaska that we see it as a great risk and we think Alaskans should see it as a great risk - the policy direction for what constitutes a substantial change is not set so we don't have, perhaps, years of delay by people being asked to refile and refile and begin the process again for whatever change may come. CHAIRMAN TORGERSON asked Mr. Britt if he supported the bill. MR. BRITT responded that they are neutral, but they think it's a good idea for the legislature to define the term. He said: There are three instances they can think of that would be captured by the bill. Two of those come up, one is routing and the other is a change from below ground to above ground mode or vice versa and the third one that hasn't been mentioned yet, would be a change from a 12- inch to 48-inch pipeline. Presumably that would not be captured by these amendments. SENATOR TAYLOR asked if he had any other suggestions for the committee with regards to routing and pipe size. "It seems odd that we should have to do this for every aspect of the pipeline…" MS. KREITZER responded that they attempted to look at the routing issue and tried to deal with that problem and it just made the problem worse. The routing seems to be the highest concern. Regarding the pipeline issue, she thought the department had already answered that with its action in the Yukon Pacific case. "It has already said that is not a substantial change. So we're sort of codifying what they have already done." SENATOR TAYLOR said he wanted it on the record that this is based on a previous decision. CHAIRMAN TORGERSON asked if the original pipeline was 12 inches. MR. EASON replied that it was somewhere between 42 - 48 inches. He didn't anticipate quadrupling it. "The technology is not there." MS. KREITZER added that a potential amendment the committee might consider to make the clearer is on page 2, line 5 to insert, "The acreage attributable to an amendment of a right-of-way originally issued by the federal government." CHAIRMAN TORGERSON said it already seemed clear to him, but they would consider it, if that's what they need to do. He announced they would hold the bill for further work.