SPECIAL HOUSE COMMITTEE ON OIL AND GAS JOINT PIPELINE BRIEFING HCR-12 FEBRUARY 14, 1994 PROCEEDINGS FEBRUARY 14, 1994 (Tape 94-6 - Side 1) CHAIRMAN GREEN: I call the Special House Committee on Oil and Gas Matters together at five minutes after five. We are on teleconference with Anchorage and Fairbanks. Can you hear us in Anchorage? ANCHORAGE LIO: Anchorage hears you just fine. Fairbanks has not joined the conference as yet. CHAIRMAN GREEN: Is there anybody in Anchorage that will be wanting to testify? ANCHORAGE LIO: Mr. Ottesen is here to answer questions. He is from the Department of Transportation. CHAIRMAN GREEN: Okay. He just wants to answer questions, rather than testify? ANCHORAGE LIO: If you have any of them. CHAIRMAN GREEN: Okay. Thank you. Well, we are going to take up House Concurrent Resolution 12, natural gas as a fuel for motor vehicles first, and then we will be fortunate to actually get an overview from the Joint Pipeline Coordinator's Office to discuss the overview, oversight of the Alyeska Pipeline. So first we are going to have the -- is there someone here -- okay. If you would like to come up and give us a run through. Please identify yourself for the record, David, and we will be off on House Concurrent Resolution 12. REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman, members of the committee. My name is David Finkelstein. Where we left off last year was, we discussed the resolution. The department and others had a number of suggestions. So the CS that is before you, has a couple added from that hearing that members of the committee showed an interest in. One of them was, "Whereas natural gas could benefit the commercial motor carriage through the availability of reliable inexpensive fuel, meet the pending low sulphur requirements of the Clean Air Act, and whereas natural gas has improved and performed the arctic conditions of Alaska, having been in use in the North Slope Borough for more than ten years on a year round basis. And then there is some other changes made that were comments from committee members, and exactly who the copies of the resolution were sent to, which is getting to be quite a list. Other than that, the situation is basically the same. I did attend some of the meetings that the state sponsored during the interim on their cooperative approach in trying to advance natural gases as a fuel in vehicles. I think there is a lot of optimism. I just passed out an article from February 7 in the Anchorage Daily News on the same subject. And other than that, I would be glad to answer any questions. CHAIRMAN GREEN: Are there any questions from any of the committee members, for Representative Finkelstein? (No audible response.) Do -- are there currently places that people can get natural gas, if they had the conversion, in Alaska. REPRESENTATIVE FINKELSTEIN: There are some. In Anchorage there is basically a fast fueling spot and a slow fuel spot out. The conclusion of the working group to date, from the meetings I attended, and the minutes I've read, is that is the bottle neck of the system at this point, that -- of private fleets, especially, are not about to convert until they have some minimum level which, I think, the Department, the state views as about four -- four to five in Anchorage, so that it is reasonably convenient. There are other communities, though, that can operate off of just one fueling spot for the town. It's just the nature of Anchorage, that is relatively inefficient to travel beyond that to get to the fueling spot. The view of those who might be in the business of selling natural gas is -- it's hard for them to make the commitment without any sense that the Department is going to follow through, as well as the municipality, private fleets, and the federal government are going to follow through, that there really will be a market out there, if they make the expenditure. But in all levels that is happening, there is still strong support within the municipality of Anchorage, at least for that one city. And on the federal level, Clinton has recently imposed to a higher level of expectation for natural gas vehicles in the federal fleet. And from my understanding, in talking to the Department of Transportation people, the private fleet managers seem to be as interested as ever. So I've got faith that -- and I've been fairly impressed with the efforts the department has made in trying to work cooperatively with industry, and sort of move together, so that by the time these refueling stations might be put in, there really will be enough demand out there. CHAIRMAN GREEN: Is there a preferred -- is it, like, a cryogenic compartment that this gas would go into and be stored as a compressed gas, or would it be liquified, or... REPRESENTATIVE FINKELSTEIN: I think all -- someone from the department could add to this, once I'm finished. But I don't think they have operated any liquified stations. There is a bit more technology involved there. I think, generally, they unloaded, and they have the transfer station, and from then on out, the distribution system is just compressed gas. But, they can correct me if I'm wrong. CHAIRMAN GREEN: How does it compare economic wise, if you had the conversion? Say, your vehicle was ready to run on natural gas? REPRESENTATIVE FINKELSTEIN: The range of figures that I've seen, and, again, the department's experience is much more relevant here -- but the range of figures that I've seen is anywhere from 40 percent of the cost, up to 80 or 90 percent. That it's always lower per BTU, and lower -- I think BTU is the term used, rather than "thermal unit." And, usually, 50 to 60 percent of the figures that I hear. It is very efficient, and it can be argued -- if you have refueling available, it can be argued it's worth the investment for even each of us right now. It's just the refueling station issue, that's, you know, created the problem. It has a variety of other benefits on the engine as well. It's a more clean burning fuel. It doesn't have the tendency to build up deposits. CHAIRMAN GREEN: Do you suppose it would ever be clean enough that you wouldn't have to have a certificate inspection, if you had a gas car? REPRESENTATIVE FINKELSTEIN: Well, those are a lot after carbon monoxide. I don't know how we deal with the particular exemption program, but I don't think you get the variation you get in traditional gasoline powered engines, where it's dependant on a complex technology to reduce the emissions. It's, you know, inherent in the engines, so even the -- a more poorly tuned engine isn't going to be off to the extreme. But all these things, you should ask, again, the department, if they have any thoughts beyond mine, because I would not pretend to be an automotive expert. I can barely keep my car running. CHAIRMAN GREEN: Anybody else have any questions for Representative Finkelstein? (No audible response.) Any questions from Anchorage? JEFF OTTESEN (VIA ANCHORAGE): Mr. Chairman? CHAIRMAN GREEN: Yes, sir. JEFF OTTESEN (VIA ANCHORAGE): This is Jeff Ottesen. I'm with the Department of Transportation, and have been, I guess, spearheading, more or less, the -- our conversion of our fleet -- partial conversion to natural gas for the last few years. It is interesting that your meeting is today. I spent the last three days riding one of our first new CNG vehicles here in Anchorage around. I drove a CNG vehicle to this meeting in the last 15 minutes. And I could tell you that they operate every bit as well as a gasoline vehicle; you can't tell the difference. To answer a couple of questions that were raised. The exemption for I & M. If your vehicle is a dedicated CNG vehicle, that is, it only can burn CNG, yes, it can be exempt. If it's a dual fuel vehicle, which is probably the most practical choice, that is a vehicle that can burn either gasoline or CNG -- it's a switch -- then it has to maintain the I & M, because of the gasoline that is present there. As far as the LNG versus CNG, that's really the same chemical fuel source, it's only a matter of how it is stored. Either being delivered to the refueler, or, ultimately, to the vehicle. LNG is simply natural gas that has been liquified. It can (indiscernible) many temperatures. CNG is simply natural gas that has been compressed to very high pressures, but it's not being stored at cryogenic temperatures. There are advantage to the LNG that we have available there at Kenai, that's a very economical method of transporting natural gas. It can be put in a truck like gasoline. It can be carried to the refueling location, beyond the range of the current pipelines. To places like Fairbanks. Stored there at refueler, and then loaded into automobiles or heavy trucks, for ultimate use by the vehicle. So I think Representative Finkelstein is right. The problem now is the refueling infrastructure. There is a lot of interest in fleet owners here in Anchorage, from what I hear, in getting into the business of having CNG. They have no place to buy the gas right now. CHAIRMAN GREEN: Would it be a fair assumption, then, that the -- if you were going to a cryogenic system, that you would have a greater range than you would under compression? JEFF OTTESEN (VIA ANCHORAGE): That is correct. If you go to cryogenic as your source on board, that is beginning to show up more and more in the commercial side of the industry. That is the -- I know the bus system in Seattle has just opted to go to LNG, because they get greater range than tanks. Likewise, the long over-the-road carriers now, around the country, are converting to natural gas. But once the gas is being used by the engine itself, it's the same gas as if it were stored in the compressed form. The LNG is just a more dense form of storage. CHAIRMAN GREEN: And I guess my last questions -- I don't want to monopolize the questions. But how would, say, either a compressed gas, or a liquified gas, be safety wise, as compared to conventional gasoline? JEFF OTTESEN (VIA ANCHORAGE): Well, I'm not an expert, but I've listened to a lot of experts talk. And my own skepticism, I think, has come full circle -- or, I should say, half circle. I have come from being a skeptic of safety, and now believing that natural gas is probably safer. And I will give you a few reasons why. One, the tanks, themselves, are much more durable, much stronger than a conventional gasoline tank. They are capable of withstanding a high velocity of rifle rounds. They are capable of being dropped off a six-story building, and surviving in tact. So just their durability, as compared to sheet metal, which is how gasoline is stored, is much better. Secondly, the fuel has a lower range of ignition. The range that it will ignite, the amount of gasoline versus the atmospheric conditions, has a much narrower band of accountability than gasoline. And then, finally, the gas, if it does have a spill, you do have a break in storage, it's lighter than air. It quickly dissipates and blows away. Where, gasoline, being heavier than air, pools and settles down. But for all those reasons, it's really a safer fuel. CHAIRMAN GREEN: Thank you, Jeff. Any questions from anyone in the audience? (No audible response.) What we need to do, I think, is first adopt the substitute as the bill. I would entertain a motion to that effect. REPRESENTATIVE KOTT: Well, Mr. Chairman, I wonder if I might be able to ask Jeff a question. CHAIRMAN GREEN: Sure. REPRESENTATIVE KOTT: It seems to be in order at this particular point in time. Jeff, Representative Kott here. I just have a question for you regarding the number of natural gas vehicles that are currently in operation in the state of Alaska. Do you have any estimate as to how many those are? JEFF OTTESEN (VIA ANCHORAGE): I don't have a hard estimate. I think, from what I've heard at the various conferences we've held, I think it's well over 100 now, and growing. The state fleet here is just in the process of adding six to its inventory. That will be our first six. We have a variety of vehicle types, as well as some that are dedicated natural gas. That is, that is the only fuel. We also have a Ford Taurus that is a bi-fuel. Some are off the factory assembly line conversions, and some are being converted -- after-market conversions. That is, the state has done it itself. So we even have these vehicles available for people that are visiting Anchorage, and need to use a state car for a day or three. They could be made available. Give me a call there in Juneau, and I could put you in touch with people that could schedule that car. REPRESENTATIVE KOTT: I would be more than happy to oblige you in using one of those vehicles, as long as I don't have to report it on my ethics report. Those numbers that you cited, over 100, are those state owned vehicles, or is that a combination of public and private? JEFF OTTESEN (VIA ANCHORAGE): I believe that's public and private. There are people that own these vehicles as individual citizens. There are various businesses that are using them now. There is a new coalition of public and private fleet managers here in Anchorage that are just this week, I believe, going to sign their resolution as -- basically, their bylaws, and that includes one of the Anchorage taxi cab fleets, the municipality and state fleet, and other fleet owners, basically getting together and trying to work -- get a teamwork environment to make this happen. In the three or four days here in town that I've had a vehicle, driving around, and I have been stopped three times with people wanting to know what this car is all about, and how does it drive. Does it work? There's a lot of difference. REPRESENTATIVE KOTT: Thank you for your comments. CHAIRMAN GREEN: Jeff, I have another comment. This is Representative Green. How does the maintenance compare on a natural gas engine to a gasoline engine? JEFF OTTESEN (VIA ANCHORAGE): We held a conference a year ago December, where we brought fleet managers from around the country here to talk about that, and they all reported the same thing. The engines simply burn cleaner on natural gas. It doesn't put the contaminates into the oil. It doesn't foul the spark plugs. You don't get the (indiscernible) on valves, and that sort of thing, in the engine, or the rings. they'll last a long time. CHAIRMAN GREEN: Thank you. Any other questions? (No audible response.) Okay. I would entertain a motion to adopt the committee substitute. REPRESENTATIVE KOTT: So moved. CHAIRMAN GREEN: It's been so moved by Representative Kott. Any objections? (No audible response.) So ordered. I would now entertain a motion... UNIDENTIFIED MALE: Mr. Chairman, do we have anybody from the oil and gas industry in the audience that can give us an estimation as to how many natural gas vehicles are currently in operation on the North Slope Borough, since they've been up there for about 10 years or so? Any idea? CHAIRMAN GREEN: I don't know whether industry -- I see, we have a member, Department of Environmental Conservation. Do you happen to know, or have a feel for -- I guess what you're really after, is just kind of an approximation. UNIDENTIFIED SPEAKER: Yes. MEAD TREADWELL: Mr. Chairman, Mead Treadwell, Deputy Commission, ADEC. As I understand it, the firm NORGAS, which is one of the people you are directing this to, has been operating its truck fleet on the North Slope. I don't know how many it is, but it's not a large fleet. My guess is five to 10 vehicles at this point. There has been -- there is also a source of natural gas, as you know, that's not connected to Prudhoe Bay, that operates in Barrow. And we had at the conference last year, a representative of the North Slope Borough, and I believe they had, with that gas utility, maybe three to five vehicles, as well. They actually -- it was kind of an interesting situation there, because the price of gasoline was far more expensive than the price of natural gas, and you would think that many more vehicles would have converted. But the explanation given at the conference was that the owners -- the people who sold gasoline had a major choice in the decision of what kind of cars were purchased, and that's why they stuck with gasoline. But the utility that controlled its own vehicles, has been running on natural gas for some time, and that's the gas utility fleet there. So the two North Slope gas utilities have it. Mr. Chairman, I had raised my hand when you were asking for questions, and if Jeff is still on the line, I -- perhaps a colloquy between the two departments. Jeff had asked me the other day what additional incentives DEC might be able to come up with to help on this. And as you may be aware, our state implementation plan for clean air is in the Department of Law right now for review. It's a 3,000 page document. It's probably the weightiest set of regulations ever contemplated, much less, had anything to do with developing. But that's what we were required to do, and that's about one-eighth the size of Oregon's 20,000 page submission on the Clean Air Act. But anyway, that is in the Department of Law right now for review, and as soon as that is adopted, we have the authority to trigger a mechanism that would allow the Department of Transportation to use some of its so-called CMAC funds to help buy a gas refueling station. And if we do that, I know that -- Jeff, you might want to explain the public-private partnership that you have in mind that could help get some greater refueling facilities in the marketplace. JEFF OTTESEN (VIA ANCHORAGE): Would that be appropriate? CHAIRMAN GREEN: Yes, please go ahead. CHAIRMAN GREEN: The notion is, we could give some of our -- some of our highway funds are dedicated to a purpose called CMAC, or Conjunction Mitigation/Air Quality. How we use that money is controlled by the state implementation plan that Mead just talked about. He needs to adjust this plan to make our spending, in this fashion, legitimate. What then happens -- what we are hoping to envision would be, some form of a joint public-private partnership allowing one or more stations to go in the Anchorage area, that would be available to both public fleets and to private fleets. I think, just in kind of a broad brush thinking proposal, or strong (indiscernible) proposal, we're imagining an RFP, which would basically say, we have this much money available to install the system. We are looking for a private partner to come in, make that installation, operate it and maintain it, and to sell the natural gas automotive fuel back to the state's fleet, on a long term basis, at a discounted cost. So that we would recoup that investment. At the same time, those (indiscernible) system would be available to any other user that would care to come in and get refueled. CHAIRMAN GREEN: Thank you. Thank you, Mead, and thank you, Jeff. Representative Kott? REPRESENTATIVE KOTT: Thank you, Mr. Chairman. I would just call your attention to page 2, line 8, where it talks about the number of natural gas vehicles currently in operation within Alaska. And per the testimony of Jeff, I think we can probably make this -- tighten it up a little more, and make it a little more palatable to those who would not seemingly think it's a good idea, by, perhaps, offering a friendly amendment, making that number 50 to 100. Since we do have over 600,000 registered vehicles in the state, I think it would add a little more thrust to the proposal. I'm certainly not wanting to hold this up in this committee, because it does have two additional committees, plus finance, which it probably ought to be away from, but -- I think it would give it a little more teeth in the matter, if we substantiated the number to a higher number. CHAIRMAN GREEN: Do you feel comfortable with that, David, that -- is that still a number that you can live with? REPRESENTATIVE FINKELSTEIN: Actually, Jeff's view is more important. If Jeff thinks it is correct, then that's more correct. I just... REPRESENTATIVE KOTT: I'd offer that as a friendly amendment, then. THE COURT: And the sponsor has no problem with that? (No audible response.) Anybody else have any comment on that? (No audible response.) You're offering that as an amendment? (No audible response.) Okay. That will then read, over 100 natural gas vehicles. REPRESENTATIVE OLBERG: Should we ask for unanimous consent? CHAIRMAN GREEN: Beg your pardon? REPRESENTATIVE KOTT: And I would ask unanimous consent of this amendment, with no objection. Don't think about it too long. CHAIRMAN GREEN: Any objection to that change? REPRESENTATIVE GARY DAVIS: Good observations. CHAIRMAN GREEN: If not, so ordered. REPRESENTATIVE KOTT: And, Mr. Chairman, I make a motion, I would move this out of committee, with unanimous consent, as amended, to the next committee referral, which is Resources. I think this is a good idea. We've ridden this horse around the corral for a long time, and it's time to open the corral door and let it loose. CHAIRMAN GREEN: Any objection? (No audible response.) So ordered. REPRESENTATIVE FINKELSTEIN: Thank you, sir. CHAIRMAN GREEN: Yes, sir. While the document is being circulated, I would like to now introduce Jerry Brossia, of the Pipeline Coordinator's Office, who will give us an overview, and hopefully we will introduce his federal counterpart, John Santora. MR. BROSSIA: Thank you, Mr. Chairman, and members of the committee. I am Jerry Brossia, the State Pipeline Coordinator. And with me here today is my counterpart on the federal side, Mr. John Santora. He is the authorized officer for the Bureau of Land Management, and Rob McWhorter, of our office, is also here. Again, I think you recognize Mead Treadwell, of the Department of Environmental Conservation, is here today. And we have a couple of folks with Alyeska, Paul Richards, and Mr. Rob Shoaf, that might be able to answer questions. First of all, I do have some prepared notes here that I will hand out to anyone who wants a copy of those. I think sometimes, as we go through life, it's hard to make my priorities your priorities. And one thing I am pleased about is, you have the interest in hearing a little bit about the Alyeska Pipeline. Because, to me, the Alyeska Pipeline is one of the most important assets that Alaska has. It represents symbolically, the steel backbone of our economy. It affects each and every one of us, if, for some reason that pipeline were to be shut off. And each year Alyeska employs 1800 people, or so, and they have an operating budget of some half billion dollars. Tonight I would like to briefly talk about the Joint Pipeline's Audit of Alyeska Pipeline Service Company. And before I start, talk a little bit about the Joint Pipeline Office. It's kind of an old idea in industry to form partnerships, and joint ventures, and things, but it is a new idea to government. And over the last four years we have formed a series of objectives to essentially strengthen our relationship with state agencies and federal agencies, to share resources, knowledge -- kind of pull together, if you will, to work our way through difficult problems. Quite often the situation in government is a big tug of war where we all fall in, and one sort of shark, or another, in the water, to capitalize on that. In this case, I believe the Joint Pipeline Office is working as a team. We have a number of state and federal agencies in the office. The Department of Natural Resources, the Department of Labor, the Department of Environmental Conservation, the Department of Fish and Game, the Governor's Division of Governmental Coordination is also in the office. On the federal side, the key lead agency is the Bureau of Land Management, and then the main federal regulatory agencies in that office are the Department of Transportation's Office of Pipeline Safety, and the Environmental Protection Agency. We also have a member of the U. S. Fish and Wildlife Service in the office. The idea of audits of the Alyeska Pipeline is not new. We have, for some time, taken an in depth look at a variety of problems. We've looked at various weld records, we've looked at corrosion, air issues, oil spill plans, and so on. There are other audits that have gone on as well at Alyeska Pipeline Service Company. You may have recently heard that the owners conducted an audit of Alyeska. And it's our intent, as well as the other government agencies intent, and Alyeska, to put all of the audit findings on the table, categorize them, sort them, and try to work through them in one single process. One might ask, "Well, why do you guys do all these audits?" Because we had a lot of allegations. We had allegations from people inside the company, whistleblowers, if you will. We had allegations from United States Congress, and they held hearings, as you well know, and it essentially caused us to take a very close look at the operations of the pipeline. One of the main issues that you will repeatedly hear are Alyeska has management problems, they have quality assurance problems, and they have some hardware problems. Now, what does that mean? The quality assurance is essentially a way of establishing what your criteria are for anything, whether it's building a pipeline or any kind of a product. And then setting up a series of systems, and programs, and check lists, to give you some assurance that the original set of specs and engineering criteria are being met. Now, as one increases the risk of some kind of a catastrophe, be it pipeline rupture, or loss of life, or something like that -- the risk. If it were to increase your assurances, should essentially parallel that, and there should be more assurances in a worst case situation. These audit findings have essentially been based on what is called a "vertical slice" of the pipeline. We looked at Pump Station 1, 6, 10 and the Valdez Marine Terminal. We talked to almost 250 employees at Alyeska. We've gone through a lot of records to come up with these findings. Originally, again, at Congress' urging, we had a relatively quick schedule to meet. The schedule started the first of September, and we entered into what we call the findings process. That was two months long. It ended in early November, followed by oversight committee hearings. Those oversight committee hearings ended, and we issued a Phase 2 contract to come up with some corrective actions, particularly focusing on management problems at Alyeska and their quality program. Currently, we are looking at solutions for the hardware problems. After the corrective actions are identified, then we will be going into the implementation stage. And that implementation stage is going to run until about December of 1994. So essentially, what did we find in this process. We had a number of positive effects that resulted and affects safety -- worker safety, particularly. The effects on pipeline integrity, from vertical supports, and so on. Seismic design of different issues. And we had some environmental issues. Now one of the main issues, I think, that everyone wants to hear about is: "What are you going to do," and "How are you going to fix it," and "What is it going to cost?" And I can't really give you definitive answers, but I can tell you the process that we are going through today. And essentially what we are doing is establishing a base line on what the laws, and regulations, and codes, and specs are. And that will become the floor of the minimum amount that Alyeska will have to do to comply with the law. On the other hand, there may be some areas of higher levels of standards that have to be set to enhance the program at Alyeska. And we have recently been going through the drill to decide what those corrective actions are, based on risk and cost benefits. And this phase will probably take us over the next couple months, followed by essentially, again -- we'll come up with the corrective action, and then we will be implementing fixes, and hope to have this implementation stage carried out by December of 1994. The findings have been placed into three different categories, again, based on risk. Class 1 being the most severe. They are the kind of problems that break out into management, broadly, and secondly, to hardware problems. Alyeska has suffered, perhaps, from somewhat of a construction mentality, when they should be in more of a processing mentality, an operation mentality. I think we all recognized that Alyeska is very good at building pipelines, and very good at moving oil, and they need to get out of a construction mentality and into one of more operations oriented, safety oriented. They have recognized that, and they have had their own series of contractors and auditors that have developed a new philosophy, if you will. Some of you may have read the paper recently, and have seen the article by David Pritchard, where he talks about changing attitude, and I believe that's true. They are changing their attitude there. They are interested in having processes in place that protect workers, and give you some assurance that the blueprints are in place, the engineering process are in place, check lists for inspectors in place, and so on. CHAIRMAN GREEN: Can I interrupt you just for a moment. MR. BROSSIA: Certainly. UNIDENTIFIED MALE: As you discussed Alyeska moving into the operations mentality, or safety oriented mentality. It is my understanding that Alyeska has one of the best safety records of any industry, especially the oil industry. Is that basically... MR. BROSSIA: Oh, I think that's true. I think there are things they can do to improve, but I would agree with you, they have an excellent safety record. And they certainly have a good record, as far as keeping the oil inside the pipe. The main hardware issues and big cost items are going to be evolving around electrical problems. And I can't tell you again what the cost would be, but I can tell you, it's a substantial effort. Several hundred workers will be involved with that electrical repairs at the Valdez Marine Terminal, and then they will follow it up through the pump station, so it is going to be a substantial amount of work. There are some other issues, in the way of hardware issues, vertical support members, where the pipe is slid over next to it. It could cause some structural problems, and again we want to do a careful engineering analysis of that before we just go out and put new VSM's in, and do sidebars, and so on. The second type of finding was called a Class 2 finding. Examples would be, drawings not in place. Quite often electrical workers will go into boxes and not know what wires are hot and what wires -- whether they're color coded properly, and so on. Fire safety programs could be improved at the Valdez Marine Terminal. Some of the emissions at the pump stations aren't being monitored in the relief systems. Class 3 findings. The kind of finding that causes loss of time. Inefficient. They could beef up their training program, to make sure they got the right training for the right job. Alyeska does have a good training program, but in some cases, the right training is not completed for the right individual work. Leak detection. Alyeska, again, probably has a good leak detection system, but it probably can be improved, and they have been working on that for the last year, and they will be working on it to try to improve the accuracy of it, so they could get it down in probably the 1500 barrel size leak right now. It's probably in the 3000 to 5000 barrel size. What have we been doing about all of this? We have essentially tried to verify a lot of work that Alyeska has done. We have brought on a few more people. We hired several consultants to give us technical expertise, so that we know that we are fixing -- or that Alyeska is doing the right fix, if you will, and we will be looking at those fixes, or cost benefits, risk and so on. We stepped up our monitoring program. We participated in five or six drills in the last six months, and tried to have a more active field presence, in general. In the short term -- it's a bit hard to see, but I think if you follow along in your handout, you could -- we've got sort of a five or six point action plan. We have an audit team that is essentially tracking the design review of each one of these findings. We will then work with Alyeska on approval of the various fixes. We will have an inspection team in the field that will sign off on them, and then they will pass it back, in some cases, to various regulatory agencies for their reviews and approvals. By this time next year, we hope to be able to tell congress, essentially, the status of all these findings, whether they are complete, in progress, or some of them may have regulatory actions that are going on. At this point I would like to turn it over to John Santora, and John is going to talk to you a little bit about the future of the office, and then I will come back and be happy to answer any questions. John? MR. SANTORA: Thank you, Jerry. Mr. Chairman, and members of the committee. My name is John Santora. I am a Bureau of Land Management employee, and presently I am the authorized officer for the bureau, with reference to the TransAlaska Pipeline. As Jerry has said to you, the TransAlaska Pipeline System is a vital resource to the state of Alaska, for the continued development of proven energy resources within the state. It is also a vital resource for the consideration of future energy resources within the state of Alaska. And it is our intention, within the Joint Pipeline Office, by lessons earned from these audits, to ensure that the pipeline system is not a contentious issue with regard to public safety, worker safety, environmental compliance, and system integrity, and any consideration of future resource development. To achieve that goal, we have taken steps to focus and look at our existing monitoring program and oversight of the TransAlaska Pipeline System activities, and to strengthen that program, and to improve it, so that we can ensure that the lessons learned, as a consequence of these audits, are not repeated in the future. Some of the things that we have done to initiate that action is, we've initiated and developed a memorandum of agreement, which has been signed by six state agencies and five federal agencies. That memorandum of agreement, now, is a formalized method for those people who are in policy level management positions to come together quarterly to discuss areas of concern and consideration, with reference to their oversight and monitoring responsibilities for that TransAlaska Pipeline System. That is the significant step to strengthen the union that has been formed between state and federal agencies, insofar as our joint oversight and monitoring of the TransAlaska Pipeline System. We are also presently reviewing our entire office structure, our organizational structure, our staff composition. We are considering how we can better utilize existing staff, the skill mix that we need permanently within that office, and also, how we can best utilize, in certain situations, consultants to assist and help with very specialized issues, such as seismic concerns, which are now under consideration, as a result of the audit. We have a very positive outlook. We've come a long way in learning how to work together positively and pro-actively. And it is our intention to continue to improve, with the focus on ensuring that that pipeline system can never be an issue of contention regarding any future development of Alaskan resources. That's all I have to say. Any questions? CHAIRMAN GREEN: Any questions of either of you? (No audible response.) When this pipeline was constructed, it was kind of put up there as one of the major wonders of the world. It was state of the art. Largest private capital -- and all these superlatives. And for years it seemed to work well. You've got an excellent safety record. You've got all these things. What happened two or three years ago to start this unwinding? This situation with the whistleblowers, and subsequently, all of the problems that you have encountered since then? MR. SANTORA: Mr. Chairman, let me try and answer that question using an analogy, if I may. What you say was true. At the time, the pipeline was a state of the art facility, but it was a first of a kind. That type of pipeline, in the Arctic environment, and in the sub-Arctic environment, had never been constructed anywhere else in the world. The best engineering judgments were applied to those unique new areas of consideration, such as the permafrost conditions, the discontinuous permafrost conditions, the construction of an above-ground pipeline, with some very unique designs for those vertical support members, given what type of supporting soils that they were placed in. And all of the other considerations that had to be taken. The tremendous Delta-T that the pipeline operates at, from oil starting out at around 105 degrees, now probably around 100 degrees on an average, down the pipeline, and the extreme winter and summer temperatures. As you are well aware, we can have 90 degrees in Fairbanks in the summer, and we can see 40 below in the winter, and yet that pipe must stay within an operational range, if you will, on a vertical support member. All of those things. But the analogy I want to draw to you is, the freeways in Los Angeles were designed to the best standards, using what they considered, at the time, the best seismic and earthquake designs that they knew of. But times have changed. Technology has improved. Design methods have improved. The methods of analysis of those particular structures and the stresses they will be subjected to, have improved. And as we saw, there was a retrofit program taken as lessons learned from previous earthquakes, to strengthen those facilities. The ones that were strengthened survived the last earthquake. The ones that had been designated to be strengthened, but they were unable to get to because of budget and other considerations, those failed. Let me suggest to you that that type of a failure contributes significantly to the cost. It is no longer a retrofit now, it is a total removal, which is extremely expensive, and a total reconstruction, which is far more expensive than a retrofit. Let's look at the pipeline. There are areas right now. The pipeline, as it exists, is safe. There is no threat from the pipeline in the given conditions we have today. But if we were to subject the pipeline to its maximum design considerations for seismic, given some of the lessons we've learned now, there is a question with regard to certain supports and certain other physical features on the line, as to whether it would be prudent to strengthen those, because they do not, at this time, appear to be seismically capable of withstanding the accelerations that they would be subjected to. If we make reasoned retrofits now, and we should, God forbid, have another seismic event of that magnitude in the state of Alaska, I would suggest to you that the remedial actions that might have to be taken would be far less than if we left the conditions as they are. Because the state of Alaska, for instance, could not do well if we had to shut the pipeline down as a result of some seismic event, for six months, before we could repair it, as opposed to maybe a month. That would be the difference. Think, again, of the work that is going to have to be done in the Los Angeles area because of that seismic event, as opposed to the work that would have been done if they had the means, and were able, within a reasonable time frame, to retrofit those facilities that were so severely damaged. So the design, Mr. Chairman, was good. The design, presently, is good for existing conditions, but we have identified certain areas that need a... (Tape 94-6 - Side 2) MR. SANTORA:... isn't good economics. CHAIRMAN GREEN: You mentioned the word "costs," and that brings a real sensitive nerve to the surface with the state. It's indicted that for every dollar spent, the state, in fact, spends 25 percent on that. What do you foresee as the cost? Can you project what the cost might be, both -- and is that 25 cents on a dollar a reasonable figure? MR. SANTORA: The 25 cents, I would have to defer to Jerry. To answer your question about costs, we just started now to get the data in regarding those concerns. The QTC audit that was done by the Bureau of Land Management, was a very narrow vertical slice, just to look at areas, and see if there was any places where there were concerns. And there were areas of concern identified. The owner companies have now launched their independent audit. That is an all-encompassing audit. It will cover all the pump stations and all facilities at the Valdez Terminal, in addition to pipeline related facilities, such as the valving that is up and down the line, to determine what areas are of concern and need to be considered. Phase 2 is underway. It's not complete. To try to answer your question would just be a guess. And, respectfully, I won't guess. CHAIRMAN GREEN: Is it big, or is it reasonable? MR. SANTORA: Within the order of magnitude of what that facility encompassed when it was originally constructed, and where it is, we intend it to be reasonable. We intend it to be reasonable. They're in business. That is a business. Any decisions you make must be made with a sense of business. You just don't spend money without considering the consequences of that investment that you are making, and how it will effect your business. If you don't do that, you are going to be out of business, and we do not want to see the pipeline company out of business. It is, again, a very vital resource to this state, and its future. CHAIRMAN GREEN: Well, where I was kind of going with this, and -- if the federal mandates, which -- yeah, it supplies oil to the United States -- perhaps the federal view of what might be necessary could vary with what perhaps the Pipeline Coordinator's Office might find, especially considering the fact of how vitally the throughput of the Alyeska line is to the state of Alaska. Proportionately significantly more important to Alaska than it is to the federal government. MR. BROSSIA: I would like to try to answer something. My answer is a bit different than John's, on how did the situation get to where it is, in light of the original construction project. And my analogy is an airplane. And you can fly that airplane as long as you want to maintain it, and that's the way the TransAlaska Pipeline System is going to be made. And several years ago the administration made the decision that we wanted the pipeline maintained at its maximum design capacity. So that means the airplane can be 30 years old, or it can be 50 years old, but it is maintained properly. Now, why did we get to where we are with the rush of construction, and the intensity of construction. A lot of things to run an operating pipeline were never done. The as-built drawings weren't completed. A good operating pipeline has, essentially, what is a called an equipment list, or a Q list, if you read this report. And a Q list is nothing more than a list of all the components that make up that system, from pumps and wires, and stacks, et cetera. And each one of those pieces, then, are entered into a predictive maintenance list. And those predictive models, then, can tell you, compliance checks, maintenance schedules, life cycle of components and parts, and so on. And those processes were never put in place. And as one maintains this old airplane, it becomes very important to know which pumps and which parts, et cetera, need to be maintained if you are going to keep the thing running for a long time. So I think Alyeska -- you should ask this question of Mr. Shoaf -- I think Alyeska has bought into the idea of these management processes, equipment lists, and predictive maintenance models, and field checks, and as-builts, and so on, because they want to maintain it, too. They have a hope. And after the throughput declined in 1988, from 2.1, it's been going down, and they don't want it to go down, and their attitude should not have that kind of decline to it, also. So they want to maintain it. They want to do a good job. And the same hope that the state has, and that's to bring future oil to market. So we can't get there from here if we don't maintain it, is the short list. As far as the 25 cents, I'm not sure it is precisely 25 percent, it might be 23 percent. It's really a question for the Department of Law, and they regulate the tariff under, I believe, Alaska Statute 41. But the concept is, the well head value of the oil is an average of west coast, east coast, and I'm not sure what else is in that basket that makes up the total spot price. But the well head is a total spot, minus cleaning and hydras costs at the field, minus transportation costs. And that deducts down to the well head value of oil. So, yes, Alaska loses money as the tariff goes up, the well head value comes down. As well as in the taxation side of things. And I, quite frankly, don't know the details of how, as the expenses goes up, that affects the tax. But in theory, those two combined, come up to about a loss to the state in revenues of 23 to 25 percent. The ultimate decision maker in those areas, would be the Federal Energy Regulatory Commission. Alaska disputed the additional costs several years ago for corrosion repairs. It is my understanding that we would dispute any unreasonable costs in this operation. So, again, I can sit here and say, "We don't want to pay, but we want it fixed." And the ultimate judge on that will be the Federal Energy Regulatory Commission. CHAIRMAN GREEN: I think you answered a question I was going to ask, that the state has about 12.5 percent of royalty, and yet pays about 25 percent -- or, would lose 25 percent. It's through the tax portion that makes that balance? MR. BROSSIA: That is my understanding, and that is a Department of Revenue question. CHAIRMAN GREEN: Sure. Okay. You used an airplane as an example. Now, we've got this 747 in Alaska. How does the oversight of that 747 compare with, maybe, a 727 or a Piper Cub, and the other little planes that are out there? I mean, there is pipelines all over the Lower 48. Do they have anything near this kind of scrutiny? MR. SANTORA: No. It's my understanding that the Office of Pipeline Safety, which is the main regulator of pipelines in the United States, has about 175,000 miles of liquid pipe in the Lower 48, and about 3 million miles of gas pipes. And there is no pipeline in the United States that receives the intense scrutiny of this pipeline. And there is no other pipeline that has developed some of the technologies that are used on this pipeline, in the way of smart pigging, and devices to look for corrosion, and so on. So the short answer is, no. There is no other pipeline that I know, that has the scrutiny. CHAIRMAN GREEN: Is that just because of the volume that's handled? MR. SANTORA: That is the answer that has been given. Twenty-five percent of the nation's domestic crude, as you know, flows through that pipeline, and because of it, it has a national security interest, and the government has decided that it needs more scrutiny. CHAIRMAN GREEN: If you didn't have this Joint Pipeline oversight group, what do you think the government might do? MR. BROSSIA: Well, first of all, there would be as many as eight, or 10, or 12 different agencies looking at the pipeline. And one of the topics that have been addressed under the proposed Presidential Task Force, is new legislation. So I guess, if we did not have the Joint Pipeline Office, the biggest potential would be for new federal legislation to create an oversight group. CHAIRMAN GREEN: So it is definitely to our advantage -- "our," being the state's advantage, to have what we've got in place? MR. BROSSIA: I believe so, yes. John, do you want to elaborate on that? MR. SANTORA: No. I would have to agree with Jerry's assessment. One of the criticisms that, in the past, before we had the Joint Pipeline Office, that was levelled, was that we were a splintered group of various regulatory and oversight agencies, and that we did not coordinate our activities at all, therefore, we were not as effective, or, in some people's eyes, ineffective in achieving the expected oversight of the TransAlaska Pipeline System. Being aware of that concern, we -- Jerry and I proposed, and were successful in starting to develop the concept of a Joint Pipeline Office. I have to suggest to you, I don't think there is another one anywhere in the United States, where the state and the federal government have been able to cooperate on a pro-active basis, with regard to a facility of the complexity and magnitude of the TransAlaska Pipeline. And I would agree with you, Mr. Chairman, I think it is in everyone's interest, that we make that type of an arrangement successful and work. CHAIRMAN GREEN: Let the record reflect that Representative Sanders got here about 10 minutes to 6:00, or 5:00, or something like that. REPRESENTATIVE SANDERS: Ten minutes to 5:00 is better. CHAIRMAN GREEN: Sorry. Yes. REPRESENTATIVE SANDERS: No, it was about ten minutes to 6:00. UNIDENTIFIED MALE: Is it 10 minutes to 6:00 or 5:00? CHAIRMAN GREEN: Ten or five minutes to 6:00 is what I meant. If there is a difference of opinion on expenditures, as you had indicated, Jerry, there could be, is there an authoritative structure within the oversight committee? MR. BROSSIA: What we hope to do -- right now John and I are the same size dog. He takes as big a bite out of me as I do out of him. So, to resolve that issue, we created this memorandum of understanding with the state and federal government, and it would be elevated up to cabinet level on the state side, and a number of the federal heads on the federal side, and they would argue it out. I don't foresee that happening, quite frankly, because, we have a lot of arguments. I wouldn't say we didn't, but usually we have been able to work everything out in the last four years. And sometimes it takes a while. But we have reached an agreement in the past with this process on one oil spill program, one corrosion program. Those are two very big programs. So I would anticipate amicable agreement on corrective actions. But in the event that we can't, we have set an elevation process up. MR. SANTORA: I would like to add to Jerry's view, that with the memorandum agreement, and the fact that we have these policy level people who have signed on that agreement, which is an intent to work together cooperatively and pro-actively. You would not see a unilateral decision made. There would be a vehicle, and there is a vehicle for discussion. And I, personally, would urge your strong support of the continuation of that agreement, and a participation of those policy level people in that agreement. I think it's to everyone's interest, because it is the first time for that office, we had that kind of vehicle where we could bring those folks together and we can discuss areas of concern, and there will be no unilateral decisions made. They must be discussed. I think it is to everyone's advantage to do that. CHAIRMAN GREEN: Now, at the Dingell hearings back in Washington, the owners -- at least three of the owners -- the bulk of the owners, in other words -- the majority ownership -- that's better -- was very cooperative and indicated that they were going to do everything reasonably in their power to cooperate. Have you found that with your oversight, that you sense that same feeling of cooperation of the owners? MR. BROSSIA: Yes. MR. SANTORA: I would support that. CHAIRMAN GREEN: Now there were some allegations that there was corrosion in the pipeline, and there was, you know, the news media about the stress situations in Atigun Pass. Is it your feeling that those issues are being -- because you indicated there wasn't any. The pipeline is safe. There isn't any immediate danger. Those issues, to your satisfaction, are being handled? MR. SANTORA: As you, I think, are aware, eight and a half miles of the pipe was replaced at Atigun Pass. Alyeska has an annual program to inspect the pipe in several different ways, for corrosion. We are a part of that program, and we believe that we have a very good understanding of where corrosion is on the pipe, how severe it is, and we're moving towards remedial repairs, in a very cooperative way, with Alyeska right now. That is the entire office, both the regulators within the office, as well as the right-of-way agency. So I believe we are working cooperatively to resolve corrosion. Now, that's not to say that there is not corrosion of the pipe. But, at this point in time, we don't know of any corrosion that presents a safety related problem. CHAIRMAN GREEN: And the last question I would have is, sometime toward the end of last year -- maybe a little earlier than that, even, but certainly toward the end of last year, there were some problems developed with the remote sensing valves, the safety valves. And it appeared, in some cases, that that was not just a natural phenomena. I haven't heard anything more. Was that just a happenstance? Do you feel there was, maybe, disgruntled employee, or whatever? That's not a concern safety wise? MR. BROSSIA: It is a safety issue, and there are about 160 valves on the pipeline. About a third of those are what you refer to as "remote gate valves," and they are essentially operable out of the Valdez Marine Terminal. The reason that the valves exist, of course, is they have a systematic and orderly shutdown of the pipe. If one were just to cut the flow off, you could create a hammer, like, you get in your water faucet, and you could literally blow the pipe out of the water and rupture it. So it's important to essentially control the orderly shutdown of the pipeline. Several things have happened: Alyeska did a trend analysis. They had several of those motors and valving regulating devices that did age, needed maintenance, needed repairs. And I think they found some 30 or 40 valves that needed upgrades, and they worked on that. Secondly, they also put a new gearing device into those motors to close them slowly, so that they can't shut down in four minutes. They are now going to close in eight. So that they are taking that precaution. And, thirdly, they are going to renovate the whole communication control system. I can't really talk to the details of that, but I know that an RFP will be going out in the near future to upgrade the telecommunications system. CHAIRMAN GREEN: One other question I might have for Mr. Santora. Recently the BLM director has left his office. What is the plan there, as far as his replacement, and his working with this whole process? MR. SANTORA: A gentleman by the name of Mr. Mike Donbeck (ph) has been designated by the secretary, to be the acting director. It is my guess that we will not see a permanent replacement until sometime, probably, the end of August or first of September. It's an appointed position, appointed by the president, with concurrence of the senate. And it looks like now, it probably won't happen until late in the summer, but you can always be fooled. CHAIRMAN GREEN: Are there any other questions about the -- yes? REPRESENTATIVE GARY DAVIS: Mr. Chairman, thank you. Every project that is built, and probably every piece of machinery that is built, has a somewhat life expectancy and a maintenance plan to it. Is all that still in place, or is the life expectancy of the pipeline, quantities of flow, major maintenance problems that were assumed to happen. Is there any major hits anyplace? Of course, if there is, hopefully, more opportunity or more oil finds on the Slope, to maybe double the expected life of the pipeline or the facility, if that should happen. Is that part of any plan now to, how to accept that and prepare for it? See how optimistic I am. CHAIRMAN GREEN: Good man. MR. SANTORA: I think you are actually -- I heard at least three or four questions there. Starting with the last one first. I think that Alyeska is, and the owner companies are thinking about a future plan for TAPS. I can't tell you what that future plan is. I can be hopeful, as you are, of what it might be, but it's something you maybe more appropriately, should ask Mr. Shoaf. But as far as, are there any hits, I think, from the State's perspective, the only real hit we thought would be under better control, would be the corrosion. When the pipeline was originally built, we thought that it had an adequate coating, and then they put a tape on it, and then they put a cathodic protection. We thought that would be good enough. So if there was any hit or surprise, it came in the area of corrosion, which there has been a fairly significant amount of money, probably 400 or 500 million had been spent on that in the last few years, and that's a number out of the newspaper, so I'm not sure how accurate it is. It has been a substantial number, and there is still a fair amount of work to be done over the next five years or so. But I think most of the corrosion is now under control, but that's the main hit. As far as the future plan, you might want to ask Mr. Shoaf. CHAIRMAN GREEN: Please join us. MR. SHOAF: My name is Rob Shoaf. I work for Alyeska in Anchorage. I've been working recently on some of the audit processes that Jerry and John have described to you. Just to answer that one question. As Jerry said earlier, we are trying to maintain the system, so it could transport all the available oil. And as John said, we would like to maintain the system, so that it is not an issue in decisions about what oil is available to transport. What that means in practical terms is, we do have programs for maintenance of the pipeline itself, and of the systems that move the oil through the pipeline. They are designed to provide a high degree of reliability. But for the current levels of throughput, which are around 1.7 million barrels a day, but also with the maximum established capacity of the system, which was 2.1 million barrels per day. Obviously, in the future we have to continue to look at that, and we talked to the state about it, but at the moment, that's what we are doing. CHAIRMAN GREEN: I know with a car, if you got this new car and it's pretty resistant to any kind of corrosion, then you begin to get little pits. It seems like the corrosion, then, accentuates the -- accelerates, perhaps, is a better word. You feel that you've got the corrosion in the pipeline under control. Is this through a treatment. Is it cathodic protection, or corrosion inhibitors that go in the oil, or... MR. SHOAF: Well, I'll start and then Jerry can supplement it, from his perspective. But we really approach the problem from two perspectives. The corrosion on the mainline pipe itself is external. We have coatings on the pipe where it is below ground, to try to minimize the potential fork erosion, and that is supplemented by a cathodic protection system, which is intended to avoid the processes of corrosion itself. We have found that some areas, like Atigun Pass, that the cathodic protection system has not been sufficient, given the circumstances, to prevent corrosion to the degree where we needed to react to it. And there, as Jerry said, we replaced eight and a half miles of pipe. In other areas we are in discussion with the joint pipeline office, and particularly the United States Department of Transportation Office of Pipeline Safety, about the cathodic protection, and engineering challenges that we face in trying to utilize the cathodic protection system, to eliminate or mitigate corrosion of the pipeline. And we are involved in a very detailed technical review of those types of issues. On the other side, we -- as Jerry explained, we run what we call a "smart pig" through the pipeline. And what that does is use -- we have two different pigs that use different technologies, to basically look at the wall thickness and measure where there is a reduction of wall thickness, and determine whether that is indicative of corrosion or not. The corrosion that is revealed through those inspections, is evaluated, based on the strength of the steel and the necessity for, still thickness, at various points of the pipeline, to allow the operating pressures that we have to have in the pipeline, to operate it at its capacity. And it's really that evaluation -- the corrosion against the operative pressures that we want that helps us determine where we have to go in and make some sort of repair. CHAIRMAN GREEN: And so far the corrosion has been from the outside in, rather than from the inside out? MR. SHOAF: That's correct. CHAIRMAN GREEN: Any other questions? (No audible response.) CHAIRMAN GREEN: Well, thank you very much. We really appreciate this update, and it's good to know that you are in good hands. MR. BROSSIA: Thank you. CHAIRMAN GREEN: Thank you, very much. MR. SANTORA: Thank you, Mr. Chairman. CHAIRMAN GREEN: Thank you. ***END***